There was a time when if you said internet radio, you could well have been saying attic radio. It was seen as an alternative to traditional radio that was streamed from attics by computer nerds and devotees of offbeat music.

That time is long in the past. These days most everyone has listened to internet radio, and if they haven't, they've heard enough about it from those who have.

And if they do listen, more likely than not they're listening to Pandora, the biggest player in the field.

Just how big became apparent this past fall when Pandora signed up to be measured by Ando Media, which audits internet listening. After debuting at No. 2, Pandora jumped to No. 1 in the October results, ahead of competitors like CBS whose portfolio includes all of their terrestrial radio streaming efforts as well as AOL Radio and Yahoo Launchcast.

In this past year alone, Pandora has doubled in size, reaching more than 40 million registered users, with more than a third, some 15 million, visiting the site each month.

Yet for all that growth, Pandora has been something of a sleeping giant, for much of its life relying on subscriptions for revenue, and not doing particularly well at it.

But all that changed in the fall when the personalized music service began taking advertising.

In one fell swoop, Pandora became a direct competitor to traditional commercial radio for advertising dollars, and it wasn't long before it began snagging major advertisers.

Pandora offers advertisers the best of traditional radio--it streams audio ads within the mix of songs--but also the interactivity of the internet. Advertisers can offer a promotion to listeners, and all they have to do is jump onto their keyboards to take advantage.

That in itself makes Pandora a major threat to traditional radio, and it has already begun to siphon off significant revenues.

"It’s fair to say that as things have progressed, we're seeing more and more of our money coming from traditional radio budgets," says Doug Sterne, Pandora’s director of audio sales.

But the big challenge is yet to come: competing with traditional radio where it's long been the primary and dominant medium, the automobile. Car listening accounts for 35.5 percent of all radio listening, second only to the home at 38.9 percent.

Terrestrial radio has been losing in-car listeners to satellite radio but now it must also compete with internet radio as more and more drivers plug iPhones and similar devices into their car radios.

As yet it hasn't seen any real erosion of ad dollars, but that's likely to change, and soon, as more consumers adopt mobile devices and more devices come out to enhance portability.

All the buzz today is a deal Pandora has made with Pioneer to introduce a device that will make it easier for Pandora users to stream music on their car radios. Introduced at the Consumer Electronics Show, the device will go on sale in March at a cost of $1,200.

The effect will be to further free Pandora from the computer and put it on an equal footing with traditional radio.

"This really shakes the foundation of radio’s dominance in the car," says Fred Jacobs, founder of Jacobs Media, a radio consulting firm.

Also likely to be hurt by in-car internet radio listening is satellite radio, which subscribers must pay for on a monthly basis.

At this point, Pandora's mobile listenership is not measured, but the company expects to have that data integrated into the measurement by early 2010.

"When that happens we expect to be able to demonstrate that Pandora receives a substantial portion of all internet radio listening in the U.S.," says Sterne.

Sterne does stress that Pandora is really a companion to radio, not a replacement. The company’s internal research indicates two-thirds of Pandora users are listening less to terrestrial radio, in a sense creating two separate audiences, terrestrial listeners and streamers.

Says Sterne: "Here’s a significant way for buyers to deliver people that are listening less to terrestrial radio."