The big music brain that knows what you like

October 18, 2012, 9:00 AM UTC

Jim Lucchese, Brian Whitman, and Tristan Jehan at the Echo Nest’s office

FORTUNE — It began with an argument. Tristan Jehan and Brian Whitman met as Ph.D. candidates at MIT’s Media Lab. Both were amateur musicians passionate about the ways technology might recommend songs based on a listener’s tastes. Both were convinced that “collaborative filtering,” a trendy means of achieving that goal, was woefully inadequate. Their disagreement? Jehan’s research focused on teaching computers to capture the sonic elements of music, while Whitman’s studied the cultural and social components. In combining the two approaches they created the Echo Nest, one of the most important digital music companies few have heard about.

Starting in 2005, they set about creating a vast database, a music brain that, based on your interest in Kanye West, can suggest you check out rapper Drake. Sound like Pandora? It’s similar — but on a massive scale. And instead of making its service directly available to listeners, the Echo Nest markets its data to power popular music services’ custom playlists and radio stations.

The Somerville, Mass., startup combines two types of cutting-edge technology: A computer program analyzes songs for their fundamental elements such as key and tempo. (The company’s customers provide access to song files.) Meanwhile, a searchlike system crawls the web collecting what people are tweeting and commenting about music — “that song is danceable,” “that singer is Dylanesque.” The two sets of data are combined to give every track a digital fingerprint containing its musical and cultural attributes. The Echo Nest has gathered data in this way for 34 million tracks by more than 2 million artists. Internally, the ever-growing database is referred to simply as “the knowledge.”

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CEO Jim Lucchese joined the company in 2007 to help market the idea to developers and businesses. Clients would pay the company a recurring licensing fee, plus a fluctuating fee based on the number of users. An important early customer was Spotify. In 2009, when the streaming-music service was storming Europe, Spotify licensed Echo Nest technology for its playlist-building function. A series of deals followed, including one with Clear Channel for its online radio player iHeartRadio and another with MTV for its Music Meter app, which generates a daily ranking of hot new artists. Along with giants Nokia (NOK) and Intel (INTC), smaller music startups such as Raditaz and Rdio signed up in droves. “They’re the best there is at what they do,” says Fred Santarpia, general manager of music-video site VEVO, which added an Echo Nest-powered “similar artist” option earlier this year.

Whitman (left) and Jehan

It’s not just the size of the database, of course. Much like Google (GOOG) and Facebook (FB), the venture has become successful by relentlessly courting developers. It provides an API — a sort of front door that makes its data usable by other programmers — explicitly designed to be simple.

David Hyman, founder and CEO of online streaming service MOG, started working with Echo Nest in 2009 when his company launched a premium subscription option. Besides “the knowledge” itself, what impressed him was how easily it could be mapped onto his own data. In other words, Echo Nest’s ability to meld with the work of other engineers has transformed would-be competitors into paying customers.

The company promotes this openness by hosting music-app “hack days” and giving developers free access to its technology for noncommercial experimentation. The strategy is making it the “mothership” for entrepreneurs looking to “create new musical experiences,” explains David McKinney, a coder in Australia whose experiments led to the creation of an investor-backed startup called Discovr.

Privately held, Echo Nest does not disclose financials or whether it is yet profitable. It has grown quickly since its founding; today there are 48 employees tinkering away in its red-brick office on a quiet block. And this summer it announced a new, $17.3 million round of venture funding led by Norwest Venture Partners, bringing its total haul to $26 million.

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Now the company is pushing into other areas. Jehan is focused on creating tools to interact with music. One example: a new kind of deejay-friendly playlist that blends snippets of songs that sound good together instead of mixing entire tracks. Another app can “swing-ify” music by manipulating sonic data so that pretty much any song can be modified to a different time signature. Play “Sweet Child O’ Mine” through the app, for instance, and the sound is subtly tweaked to make it seem as though Guns N’ Roses were playing a smoky Vegas lounge set rather than arena rock. (The app is fun, but not for sale.)

Meanwhile, Whitman has been trying to further refine discovery results by collating music data with individual listeners’ preferences. In October, Echo Nest added taste-profile tools to its API that may help developers match musical taste with even seemingly far-out preferences — like political affiliation. (The company’s experiments found that Republicans favor Kenny Chesney, Democrats prefer Rihanna, and the Beatles appeal to, well, everybody.)

While Echo Nest’s approach is unique, other firms, like Gracenote and Rovi, also compile and market music data. (Apple’s (AAPL) iTunes relies on Gracenote, for instance.) Some services, notably Pandora, have built proprietary systems that could compete with Echo Nest. Ultimately, the depth of “the knowledge” may be the firm’s best asset. MOG CEO Hyman explains that’s why his company went with Echo Nest. “We liked their results,” says Hyman.

This story is from the October 29, 2012 issue of Fortune.