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Pandora (P) shares have lost over one-fifth their value over the last few days, merely on the rumor that Apple (AAPL) may be planning a competing service.

Based solely on fundamentals like usage, this should not be. The company has doubled its quarterly revenues over the last year, and it's approaching break-even. It's positively-leveraged to increased traffic.

Some analysts are worrying about rising royalty rates, but after past royalty battles destroyed the Internet Radio industry it's unlikely that the music industry - whose RIAA trade group has been shedding employees like a solar power start-up - wants to push too hard.

No. This is mainly about the rumor. If Apple wants the space, Apple will take the space, and it appears there is little or nothing Pandora can do about it.

Still. Let's set the wayback machine to 1996. People were doing the macarena, and another Democratic President was riding to re-election despite the fierce opposition of Wall Street. Meanwhile, the owner of the largest computer ecosystem then known was pressing hard to "embrace and extend" its monopoly control into the Internet space, and targeting a little company called Netscape.

Netscape died, although it was eventually re-born as an open source non-profit and now offers the Firefox browser, a contender (although with the success of Google Chrome some might now say pretender) in today's browser wars.

But what I want to focus attention on is what happened to the monopolist, Microsoft (MSFT). Yes, it finally won its war with the Justice Department. Yes, it's no longer even under judicial supervision. But it also lost its way. It found itself burdened by layers of legalistic bureaucracy and PR experts throughout the company. Suddenly, anyone with a good idea found themselves with dozens of people above them all saying one thing - no.

This is the real cost of an anti-trust action. It's not the action itself that's the problem. It's fighting the action. Fighting the action means second-guessing yourself, making that part of your corporate culture, and it can be impossible to recover from that, especially in a fast-moving technology industry.

On the other hand, government suffered in that action as well, and might be expected to go more carefully this time. The case of U.S. vs. Microsoft reinforced the view among many in Silicon Valley that Democrats are unalterably anti-business. You can argue that Al Gore's defense of the administration's actions in that case helped lead to his 2000 defeat, and everything that followed for his party and the country from that.

The point being that there is a delicate dance to be played here. Companies like Apple need to approach entry into businesses others have pioneered carefully, just as government needs to approach its role in technology anti-trust carefully.

My guess is that lessons have been learned on both sides. My guess is this will turn out OK for Pandora, even if Apple announces its own service tomorrow. A wise monopolist lets some live.

Source: Will Pandora Become Netscape?