Like terrestrial AM and FM radio stations, Pandora users select a station, and its music-selection algorithms handle the business of selecting the rest of the songs. Pandora operates as what's called a "passive" radio service. These differences, as you'll see, are incredibly important. Though they perform similar services, the differences between business models and geographic markets are the two most significant factors driving the multibillion-dollar valuation gap between Pandora and Spotify that exists today. So why is Spotify more valuable than Pandora? Pandora's business model as a hurdle Today, Pandora's market capitalization stands as a mere fraction of Spotify's most recent private market valuation. The online music pioneer's market cap peaked at slightly more than $7.5 billion in early 2014, only to see its stock plummet since then by roughly 75%. As of its most recent round of fundraising, Spotify's valuation now sits at an impressive $8.5 billion. Spotify's ascent as the most used digital-music service in the world has paralleled a similar increase in its private market valuation. In the music industry, and perhaps all of tech, there may not be a better example of divergent paths than those of Pandora ( P) and Spotify.
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