In September 2018, the world’s most valuable company bought the British music discovery service Shazam for US$ 400 million. Was the small company worth the price? What does Apple have in mind? And what will happen next? An analysis.
The rumors first made the rounds back in December 2017. But it was not until September of the following year that EU authorities cleared the way for US tech giant Apple to acquire Shazam Entertainment Ltd., the London-based service for identifying streamed music. The (unconfirmed) price tag of US$ 400 million was less than half the
US$ 1 billion-plus valuation accorded to Shazam in a 2015 funding round. Yet even at US$ 400 million, it’s a huge outlay for Apple.
So what exactly has Apple brought into its fold? Shazam is best known for its smartphone app of the same name. One of the first apps ever to appear in the Apple App Store, Shazam – a music discovery tool that can recognize and identify virtually any piece of music within seconds – has since notched up . Founded in 2002, the company has achieved a rare honor: like “googling”, “shazaming” has become a verb in its own right. Holding your phone to a source of music to find out what it is: that’s “shazaming” a song.
For Apple, Shazam could be a way to secure an early lead in the race for AR advertising revenues.
The company launched its service back in the days of no-frills mobile phones. Users would call a number, hold their Nokia or Motorola phones to the music, and they’d be sent a text message with the title and artist. The big breakthrough came with the smartphone app, now used on a regular basis by
150 million people – on Android as well as iOS. Even post-acquisition, there are no plans to restrict the app to Apple phones only. In December 2018, Apple rather announced that it would offer the app advertising-free from now on in order to attract and retain as many users as possible.
What makes Shazam valuable for Apple?
Most industry observers agree that Tim Cook made a good purchase with Shazam. Compared to other tech giants, Apple buys companies only rarely. When it does make an acquisition, it goes for relatively small companies – the big exception being the successful and already highly profitable headphone manufacturer Beats, for which Apple paid US$ 3 billion dollars in 2014. Otherwise, what Apple acquisitions have in common – be it Faceshift for facial recognition in Apple’s Face ID, VocallQ to improve voice assistant Siri, or indoor.io for extending Apple Maps to buildings – is that they are driven by clear strategic reasons.
Shazam existing without the ads should please Apple music artists
So what is behind the purchase of Shazam? There are various reasons why the British company could be highly useful for Apple; music discovery is the most obvious. For a number of years, Apple has been expanding its business model, moving into digital services alongside its extremely profitable hardware sales. This shift is growing in strategic importance as iPhone sales gradually level off. Alongside the App Store and cloud services, the Apple Music subscription service is one of the key pillars of Apple’s Services division. Apple has already persuaded over 50 million users to pay each month, a figure exceeded only by the 83 million paying users of leader of the pack Spotify. Shazam could prove the ideal tool to attract additional subscribers. Every day, around 20 million songs “shazamed” with the app – and users who want to know the name of a song are likely to want to hear it again at some point. So why not on Apple Music? If the final stage in the sales funnel is the take-up of a streaming subscription, its start point is likely someone holding a smartphone to a speaker in a club or at a party to find out what song is playing. For this reason alone, it is only logical operate without advertising, and to keep the usage barriers of the app as low as possible.
With Shazam, Apple is also gaining big data in terms of music tastes and listening habits. Which artist, which songs are most popular in which city, with which target audience? These insights deliver valuable leverage for marketing campaigns and negotiations with rights holders – especially for a company like Apple, which according to its own statement has so far largely held back from tracking user behaviour. The importance of knowing what users are doing has been shown by Facebook, in a way that is as impressive as it is ethically questionable. In 2013, largely unnoticed by the public, the social network bought the Israeli VPN provider Onavo. Its app promises to protect users’ data traffic when using public WLANs. However, because the purchase gave Facebook
insights into the data streams, the company had early warning of the meteoric rise in popularity of then-new services such as WhatsApp, Instagram and Snapchat. Facebook tried to buy all three. It was successful with WhatsApp and Instagram; both are of immense importance to the company today. Shazam could serve as a similar early warning system for Apple and Apple Music.
Visual recognition and augmented reality
Even though the company became known primarily for music recognition, Shazam’s business is now a lot more than music. In 2015, the company unveiled a visual recognition technology that was used initially in advertising: users can point their smartphone at an ad or billboard and instantly get more information. This was an extension of what was already happening with audio: Shazam clients such as Absolut, Gillette or Jaguar were already using Shazam to enrich their radio or TV commercials with acoustic links to online offers. Shazaming a commercial, for instance, takes the user straight to the product website.
Over the last year, Shazam has expanded this service into a “
visual onramp to Augmented Reality”, as the magazine Apple Insider formulates it. A poster for the futuristic Disney theme park “Tomorrowland”, for instance, becomes a secret door into a virtual world. Instead of being taken to a run-of-the-mill website when they point their phone at the poster, users embark on a journey with the Shazam app Tomorrowland, which superimposes augmented-reality graphics onto the real-world environment. Other companies are also on board. Porsche, for instance, was the first company in Germany to use Shazam to turn a double-page magazine ad into an augmented reality advertising world.
With its ARKit, Apple is also expanding the augmented reality portfolio
For Apple, which has never been such a major player in the advertising market as Google or Facebook, Shazam could be a way to secure an early lead in the race for AR advertising revenues. Tim Cook is increasingly focusing on augmented reality technology – looking beyond advertising with the developer platform ARKit – and aims to set standards, attract developers and thereby determine the direction of the AR journey. Image recognition technology, as used and continually perfected by Shazam, also has a core role to play in the opportunity-rich areas of machine learning and artificial intelligence. Either way, the visual abilities of Shazam could be the most exciting part of the package, and the core reason for the acquisition. After all, music discovery – based on a Shazam cooperation – was already a Siri feature way before the acquisition. It remains to be seen how well Shazam in its entirety can be integrated into the giant from Cupertino. Small innovative startups are often a poor fit for the large-scale structures of big corporates, even the digital players, as evidenced last year at Facebook, which saw the departures of the founders of WhatsApp and AR headset maker
Oculus. Shazam would here most likely have identified the song “Breaking Up Is Hard To Do”.