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Pandora Didn’t Pay Its Employees for Two Years, or How I do Research

When I look at a story, sometimes I have to look past the history that has already been written to find the truth that was hiding behind it. This is one of those times.

Let’s start with something I learned doing research for my last post:

Pandora deferred the salaries of its employees for over two years in the early 2000’s after it ran out of funding.

This is not something I ever heard before, even in passing. I mentioned it briefly in my post, but I want do a bit more than that. I’ve been doing this long enough that it’s not often I’m confronted with something that a) I’m not familiar with and b) brings to light reasonable ethical and ideological concerns. Parsing out this particular story about Pandora gives me a unique opportunity to pull back the curtain and talk about how I do my research and how I chose to write the stories that I write.

As an added bonus, I get to make a slightly bigger deal about a practice I find deeply troubling. But I’m getting ahead of myself. First, a bit about me.

I studied history in college. I never quite made it to true academic status. Instead, I coded websites and that led to a career that I love and am grateful for. Back in college though, I learned how to do research; how to follow secondary sources to primary sources and draw connections between them. How to filter bias from the histories that I read. I also learned how to filter bias from my own writing.

Unless it’s relevant.

There’s a myth we’re taught about history. That it is a stream of objective truth. But no history and no historian is without an ideology. The bias of our objective history textbooks is made plain through what’s included and, even more importantly, what is not in the text. A great historian can masterfully weave their ideology into their text, letting it act as a guide without overpowering the facts of the past. I wouldn’t consider myself a great historian. I try my best to bring truth to the history of the web because I think that project is worthwhile. Yet the web is a lifelong passion and I do love it and I have hopes for what I believe it can be. That occasionally comes through in my writing and I like it that way.

Now back to what I learned. In 2001, Pandora Radio ran through their initial funding of 2 million dollars. Believing deeply in the project, co-founder Tim Westgreen got in front of his employees and told them he couldn’t pay them. But, he said, if they could just hold on a little bit without pay, there was potential to change the world. A week went by, and he gave that same speech. Then another week. Then a couple of months. In the end, Pandora employees went with a deferred salary for two years. Some employees quit, others stayed on. After that, Pandora was finally able to secure another round of funding.

Some context. If you’re wondering, deferring salaries is illegal in California, where Pandora operates. This is something Westgreen has claimed not to have known at the time. That claim is dubious at best, but it has also never been disputed so take that however you want.

At the end of the two years, the employees received their entire backpay in one lump sum. None of the employees that stuck it out were entitled to equity or bonuses as a result of their steadfastness.

Each employee had a choice. If any employee was unsatisfied with the arrangement, they could leave. However, employees reportedly had no idea how long it would take to receive their backpay. This illusion of choice also leaves out the dishonest and uneven power dynamic in place when a CEO strings along employees for years with dreams of something larger than themselves. It’s why the practice is illegal in the first place, and why several employees chose to sue the company years later.

As I’m sure you can tell, my feeling on the matter isn’t mixed. I think it’s one more instance on a long list of a large tech company using bold promises and a lofty vision as a way to justify employee mistreatment. It adds to the myth of the world-changing, earth-shattering website, when the truth is that really all the website does is stream music in, I will admit, a gratifying order. And Westgreen is one more example of the fabricated lone (male) tech genius guided only by their own fortitude and ambition, leaving out entirely the connections, luck, and contributions from a large team that required to get the work done.

Learning about Pandora’ salary deferral prompted me to dig a bit deeper. What struck me was how the story has been basically buried, and when it is told, how it’s been framed.

Let’s start with the burying.

This story wasn’t exactly hard to find. It’s on the Pandora Radio Wikipedia page. However, it isn’t particularly widespread. There were a couple of news stories that came out the same time the lawsuits did, but given the exploitative nature and shaky legal ground of an otherwise well-liked tech company, it was not in as many places as you think. We are in the midst of what I don’t think is too far to say a reckoning for the tech industry at the moment, and I have no doubt that if Pandora had stopped paying their employees this year, it would be covered extensively and discussed at length.

And yet, things are papered over in history all of the time. Part of my project here is to dig up things that have been forgotten. My best guess here is a combination of obscurity and timing. Pandora wasn’t a well-known company at the time, except in pretty tight circles, and even if it was, it took place before the tech scene was dissected ad nauseam and a modicum of accountability had crept in, as I believe it has today.

More off-putting was the framing. In the few places I did manage to find mention of the Pandora story, it was told, at one end, as a sympathetic bump in the road, and at the other, as a triumphant tale of perseverance. It’s this latter characterization I find most troubling, as if conning employees out of their compensation is a genius move that requires charisma and strong beliefs and not, as is actually the case, timing and a sizable dose of deception (employees have said that funding felt right around the corner and no one thought it would take so long).

Hustle Con was one of those places where you can find the practice not just lauded, but actively encouraged. Westgreen was there in 2015. Despite talking about many things during his twenty minute or so talk, there was only one question people had during the Q&A at the end. How did you manage to convince your employees to receiving payment. Westgreen gave a simple answer, which was then reframed in a subsequent write-up in the Hustle’s newsletter like this:

Think you’re persuasive enough to convince 50 of your employees to work for two years without pay? Probably not. Well that’s exactly what Tim Westergren, the founder of Pandora, managed to pull out. How? By giving one helluva pump up speech.

Notice how it is described. Westgreen was able pull off salary deferment with a bit of inspiration. His speech was so effectual employees were moved to soldier on and fight the good fight on behalf of the company. It is through sheer force of will from its founder that Pandora was able to succeed. Hustle Con is not the only place to celebrate Pandora’s decision like this, but it is the most transparent in its celebration.

And that is what finally brought me to my angle. Seeing an illegal and morally dubious practice be somewhat forgotten and occasionally admired shifted my way of thinking a bit. I began to look back through some of the research I had already done on Internet radio with this new perspective. It would be boring for me to simply recite history in chronological order, though I’ve been known to do it from to time. Far more interesting is to find the connections between stories. Pandora gave me that connection.

What I found was that as these companies became more and more popular, they could only be sustained by an act of overextension or a loss of control. When NetRadio.com tried to reach a critical mass, they had to be stripped and sold for parts just to pay the bills. For Broadcast.com, Mark Cuban was able to use aggressive expansion followed by a quick exit before it all fell apart. Last.fm was unable to keep up with the licensing fees and expanding musical catalogs of its users, and only a purchase by CBS was able to keep them afloat until a market pivot for the company resulted in a huge loss of its customer base.

Pandora also faced its fair share of close calls, but it was able to weather them all. And that was for a lot of reasons but not paying employees for two years certainly didn’t hurt.

That brought me to a question. Why was it that these companies were so desperate to succeed that they turned to overly aggressive tactics to try and expand as quickly as possible? Why does it seem that every time a web radio company got started, it arrived with outsized ambition, even for a tech company?

Eventually I arrived at an answer. Web radio tech got a lot better over the years. Sound quality improved dramatically, listener preferences began guiding the experience, and social features added a layer of interactivity. But the real story was about one company after another trying to seize an opportunity to dominate the media landscape on the web for years to come. If you could get to web radio first, you might be able to get to streaming first. And that market had near limitless potential, a fact that is painfully obvious now but not as clear 20 years ago. If these companies had to break a few eggs along the way, well, it seemed, then so be it.

That narrative was interesting to me because it highlights something that’s more difficult to understand in retrospect, just how important the media market was on the web. So that’s how I chose to tell the story and it’s with that thought I chose to begin.

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