Pandora should be afraid: Spotify has big plans for The Echo Nest


I’m a big fan of Spotify as a way to listen to songs I already know about. But the service’s radio station option — which automatically picks songs for you based on your first song choice, a la Pandora — hasn’t impressed me. In my opinion, Pandora remains the superior product for personalized Internet radio.

That could change with Spotify’s acquisition of The Echo Nest of Somerville. The company has provided key technology behind Spotify’s recommendations and radio station playlists. But as The Echo Nest chief executive Jim Lucchese told me yesterday, there’ve been limits on how much personalization the company’s system could deliver to Spotify users.

“There are a bunch of things you can’t do at arm’s length, that when you’re fully integrated, you can,” Lucchese said. “There’s an opportunity to impact the user experience in a much deeper way.”

What exactly Spotify and The Echo Nest team have in mind isn’t being detailed for now, though the general premise is that “we’re trying to understand who you are as a music fan,” Lucchese said.

“There are a lot of things on the front end and user-experience side that we don’t see,” he said. “By fully integrating that, doing immediate A/B testing, you can improve the user experience much, much faster … Spotify sits on an incredible amount of interaction data, which we’ll have much better visibility into.”

All of which could position Spotify to further chip away at Pandora’s Internet radio service. The service remains popular — with 76 million active users — but faces pressure from other sources too, such as iTunes Radio. (All in all, investors weren’t thrilled with the February metrics for Pandora, and shares sank 6 percent on Thursday.)

Spotify reports having 24 million active users, with 6 million of those as paying subscribers.

Big for Boston

As I reported yesterday, the acquisition of The Echo Nest will make Somerville the largest U.S. engineering outpost for Sweden-based Spotify. The firm has 63 employees in Somerville, all of whom are staying put.

Lucchese said it’s too early to say what sort of hiring Spotify may have in mind, but hinted that company founder and chief executive Daniel Ek is interested in tapping Boston’s tech resources.

“I can say that one of the things Daniel and I talked about was that Boston is just a great pool of data and engineering talent,” Lucchese said. “I think there’s a recognition that there’s a big opportunity here.”

The Echo Nest uses artificial intelligence to analyze massive quantities of data located on the Web, in order to predict users’ music preferences. Along with Spotify, the technology is used by ClearChannel’s iHeartRadio app, MTV, and Rdio. It’s unclear whether competing services will be allowed to continue using the technology under Spotify’s ownership.

Pandora, meanwhile, is based on data created by hired experts about songs and artists, what’s known as the Music Genome Project.

Nine-figure deal?

The price tag for The Echo Nest acquisition may have been $100 million, according to TechCrunch, which cited anonymous sources. That dovetails with what Matrix Partners’ Antonio Rodriguez told me — that the acquisition was a good deal for all investors, who had put $27 million into the firm since its founding in 2005.

Ninety percent of the acquisition price is being paid in Spotify equity, TechCrunch reported. If correct, that would set the stage for a potentially big win for The Echo Nest’s shareholders in an expected upcoming Spotify IPO. Strong demand for Spotify shares on the public markets could end up valuing The Echo Nest deal at  more than $100 million for shareholders (and maybe much more).

Top shareholders in the company include Lucchese and The Echo Nest’s founders, Brian Whitman and Tristan Jehan, who launched the company while working as researchers in the MIT Media Lab.

Along with Matrix Partners of Cambridge, other venture capital investors in the company were Waltham’s Commonwealth Capital Ventures, Norwest Venture Partners of Silicon Valley, and Boston Celtics minority owner James Pallotta.

Kyle Alspach has worked in journalism in Massachusetts since 2005 and was one of the original staff writers at BetaBoston.
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