Apple's (AAPL -1.04%) iTunes Radio is well on its way to becoming the second largest music streaming service, but still trails Pandora Media (P) by a wide margin. The service, launched last September and has quickly gained an 8% share of the market according to a survey from Edison Research. That places it ahead of Google (GOOGL 1.89%) Play Music All Access and Spotify, and just behind iHeartRadio.

With Apple just getting under way with iTunes Radio, how much of a threat does it pose to Pandora's business?

Feeling the impact
Last October, in iTunes Radio's first full month after its launch, Pandora felt the impact. The number of listeners "tuning in" to its website and app fell from 72.7 million in September to 70.9 million in October. Pandora returned to growth again in November, but still fell short of its September metric with 72.4 million listeners.

This isn't a seasonal problem. In the previous year, Pandora increased listeners from September to October. And it's not exactly a one-time impact. There's been a significant drop-off in year-over-year listener growth since September.

Pandora saw another sequential drop in listener hours in February, but that could be explained by the shortened month. The company still added 1.9 million net new listeners last month. But the dropoff in listener hours was more severe than in previous years indicating that perhaps something else is at play.

Average hours per listener were up in January, however, and flat in December. The slight decline year over year in February ought to be monitored.

How big is iTunes Radio?
Although Apple rarely releases metrics on its users or listener hours like Pandora, the results of the Edison Research survey may give us a clue.

Last month, 75.3 million people used Pandora. If that accounts for 31% of the market, and iTunes Radio has 8%, we can estimate iTunes Radio users at about 19.4 million.

That sounds pretty impressive for a service that's less than six months old, but Apple announced it had piqued the interest of 20 million users just one month after it launched.

That announcement also said that it streamed 1 billion songs, which is just about 58 million hours. Comparatively, Pandora streamed 1.51 billion hours last month -- more than 25 times with less than four times the users. It's likely a lot of people were just trying iTunes Radio and its current 19.4 million users are much more active listeners.

Still, average listener hours per Pandora user are relatively flat year over year in the last three months. So those that do listen to Pandora, aren't listening any less. As such, user growth will be key. Since iTunes Radio was released in September, Pandora has added 2.4 million net new listeners. In the same period a year ago, the company added 9.4 million net new listeners.

Not just iTunes Radio
The problem for Pandora isn't so much iTunes Radio as it is the plethora of streaming options for music listeners.

Google actually owns the largest music streaming property -- YouTube. The company is working on a music streaming service based around the video platform, which would differentiate itself from other music streaming services. Considering the reach of the YouTube app -- 49.7% of smartphone users -- Google could be very successful if it releases a music service on the platform.

Moreover, Pandora faces competition from Spotify, radio behemoth Clear Channel Communications (iHeartRadio), Rhapsody, and dozens of niche genre-specific streaming sites. The market is fractured right now, as everyone battles for their piece of the growing market. Pandora has the most to lose, and naturally is growing much more slowly than the rest of the market as new competition enters.

And Pandora's valuation poses a problem. Currently priced at 10.8 times sales and over 200 times estimated 2014 earnings, Pandora is priced incredibly high considering the size and strength of its competition.