Why isn't Internet radio more widespread? (both inside and outside the car.) I have heard a number of theories. Too many codecs, too many formats, lack of bandwidth in mobile, etc. However, all of these theories are actually details obscuring an underlying reality.
For Internet radio to become truly widespread, it needs to "just work." The consumer needs to be able to power on, turn the knob, and have good sound coming out. If they don't like what they are hearing, they need to be able to hit the seek button to find something more to their taste. That's it, it needs to be that simple.
Before all the technologists yell foul and complain that that Internet radio is too complex for this to happen, let's look at AM and FM radio. The consumer experience of AM and FM radio is exactly as I describe above, but a lot of moving pieces had to be fixed down before it could happen. AM and FM are complex, they just don't feel that way due to good standardization.
Although first broadcast in 1906, AM didn't become commercially viable in North America until standards were set for carrier amplitude, modulation frequency range, channel spacing, and overall carrier frequency ranges for receivers. This standard stood alone for 30+ years until FM arrived and presented another selection of standardized components which added up to a complete solution. As a result, over 80 years later, we can still turn on an AM radio, tune the dial, and enjoy the broadcasts. You don't need a different type of radio for every single station.
For Internet radio to reach the same robust level, we need a unified standard which covers connectivity, discovery, directory, transport, and playback. The good news is that the nature of the beast already gives us a standard for connectivity, TCP/IP and UDP. Now we need to get to the brass tacks of the remaining items.
Disovery: Internet radios need to have a kind of global UPnP, which makes it automatically aware of relevant directories. It may be as simple as a directory of directories maintained by ICANN, but that's just a quick guess. And the problem remains, who gets listed and in what order? This may be the most difficult part since it needs to be truly neutral for it to work across all vendors and broadcasters.
Directory: Internet radios need a standardized way to get a list of stations which are available. Also that list needs to have some kind of globally relevant set of sorting and grouping tags.
Transport: Once we know what streams are available and where they are, we need a limited set of ways to get access to them. HTTP "Shoutcast" is the most widespread transport method used today, but it doesn't do well in lossy environments like mobile/car. RTSP is used by 3GPP and in IPTV and works great for mobile, but it isn't widely used by today's Internet radio. Although the purists (and you know who you are) wouldn't like it, any standard will need to support both transports. We would also need to implement a standardized backchannel interface for services like Pandora, which takes user preferences into account.
Playback: Now that we have the stream unwrapped, we need to put it out over the speakers and on whatever display is available. That means we need an audio codec. Given its widespread use, MP3 is probably required here. However, the content fees put forward by Thomson coupled with the recent lack of clarity around MP3 patent ownership means that this could be an issue. MPEG-4 HE AAC v2 is the standard in mobile and is also used by Shoutcast. Given its open-standards nature, its bitrate efficiency, and clear patent pool, HE AAC v2 should also be fundamental. Beyond codec, the playback standard also has to have a fixed methodology for metadata presentation, including album art and even advertising.
The parts needed for a true Internet radio standard are nearly all off the shelf. Existing solutions can be quickly adopted or tweaked to match the needs. The only real barriers will be in compromise, cooperation, and will power. Once we come together and establish such a standard, then Internet radio can truly blossom, be free of the PC, and be as ubiquitous as AM & FM.