Pandora by the dashboard light

August 25, 2010: 3:08 PM ET

Whether hooked to a laptop or iPod, or mainlining the Internet, car radios are evolving, with big assists from music companies like Pandora, MOG, and Jelli

By Betsy Feldman and Benjamin Snyder, contributors

Radio – the word is likelier to conjure up FDR's fireside chats than the cutting edge of the Web, but the original broadcast warhorse has survived the Internet boom far better than other traditional media. Americans listen to the radio an average of 17 hours a week; over half of that takes place in the car. So it makes sense that car radio is the new frontier for online music sites like Jelli. "The car is the new battleground for the web," says its CEO and founder, Michael Dougherty. As music websites ramp up their mobile offerings, companies are trying to find new homes for their services in America's automobiles.

In the last decade, sites like Dougherty's Jelli have proven the place of online radio in the market. Some, like Jelli and MOG, incorporated social-media techniques, getting users to interact with each other. Others, like Pandora, shaped playlists based on user tastes for a fee. All have competed for the smartphone market with ever-niftier apps. But there are a finite amount of new phones and tablets with which to become compatible. The trick then, is to get users on those platforms to connect their devices in the place they listen to audio most -- the car. And if music sites like Pandora, MOG and Jelli have shown anything, it's that people really do like the power and flexibility of online radio.

Some sites have already taken steps toward the dashboard. Pandora, for example, has a deal with Ford to stream Pandora radio (and other digital content) through Ford's new entertainment system, Sync.  According to Pandora CEO Tim Westergren, "Our long-term goal is to make Pandora completely ubiquitous, easily accessible, anywhere, anytime." The market seems to have noticed, with TechCrunch reporting that Elevation Partners, a private equity firm with a partner -- U2's Bono -- who knows a thing or two about music, is on the virge of investing $100 million into Pandora.

In some ways, Pandora is the ideal car-radio music provider. Debuting in 2000, it dispensed with the on-demand model that places the onus of choosing songs on the listener, instead creating personalized playlists based on a single song request and general likes and dislikes. Sound familiar? This is roughly what radio stations do.  We tune into the radio stations that generally cater to our music tastes. Pandora in the car will only make this easier.

If Pandora largely cuts out interactions between users, Jelli's model wholly depends on them.  According to Jelli CEO Dougherty, "We think that radio and music are inherently social, and that it is part of its DNA." The "rocket" or "bomb" voting feature that allows Jelli listeners to move songs up and down a radio station's queue has won fans, but -- keep your hands on the steering wheel -- is probably less than ideal for the car, although Dougherty hopes it will be auto-compatible in the near future.

The challenge for Jelli, a relatively new site, underscores the issues confronting music sites built around social-media elements: Social features are not necessarily practical or safe for the road.  Furthermore, the presence of a social feature doesn't guarantee listener interest. In fact, says MOG founder and long-time digital music industry insider David Hyman, few people use the full capabilities of MOG's social features, with mostly only "power-users" taking the deep dive. Hyman finds that typical users prefer the "man-to-machine relationship" instead of the "man-to-man relationship."  Accordingly, he designed MOG to "peel the layers of an onion," combining automated selection with personal picking, driven partly by social media services.  "The driving experience, and related safety issues, require a new approach to the user interface for web services," Hyman says.

And although online radio has proven its appeal, it has yet to demonstrate profitability -- in its own bailiwick, let alone in car radio. People are clearly willing to dole out the cash to listen to good music. As MOG founder Hyman says, "People talk about whether subscription services can work but you've already got 15 million people paying for satellite radio under a subscription." But none of the big sites -- Hyman's MOG uses a subscription service, whereas Pandora and Jelli do not -- has demonstrated consistent profitability.

Music sites may see that radio is the wave of the future, but they have many questions to answer before they can move soundly into cars: How to integrate social-media features with road safety concerns; how to monetize the service; and, of course, how to acquire the full back catalog of "Prairie Home Companion" and "Car Talk" for those Sunday afternoon drives.

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About This Author
Paul Smalera
Paul Smalera

Paul Smalera is a senior editor for Fortune.com, guiding the website's coverage of tech, finance, investing and the economy. He has written about a wide variety of topics -- from the inner workings of the Google search engine, to the biodiversity protecting Svalbard Global Seed Vault, to the economics behind online dating websites and the impact of the Fed's policies on the national and global economy. A true generalist, Smalera believes every story is a business story if you follow the money.

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