Referrals and Data Fuel Value

Prior to universal access to digital technology, identifying music in restaurants, bars, or stores was difficult to nearly impossible. Founded in 2000, Shazam provided a readily-available solution to music identification. The company generates revenue primarily through referrals; the platform provides users with links to purchase music, television programming and more through content distributors. Initially, consumers could use Shazam’s call-in service to easily identify ambiguous songs. However, as smartphones and tablets became ubiquitous, Shazam adapted by developing an app for Apple (AAPL) and Android devices. Today, the Shazam app is also available in a small-size (“Lite”) version for Android, for Apple Watch and Android Wear and for Mac OS.

Although it was founded in 2000, Shazam has seen a majority of its expansion in just the last few years. Thanks to the role of digital technology in individual lives, Shazam has experienced exponential growth.

With a majority of income generated from music referrals and advertising, Shazam sources investments to expand current and new business ventures. Notably, América Móvil tycoon Carlos Slim invested $40 million into the company to expand the service to Latin America. As a result, Shazam witnessed a 100 million increase in worldwide users.

In 2014, Shazam expanded business ventures from music to include television. Shazam’s service operates similarly across both mediums. Users hold their smartphone or tablet to a music or television sound clip, which Shazam then processes, producing the title of the song or program being experienced. Shazam currently boasts 1 billion users with more than 20 million tags per day and a music database of more than 30 million songs.

In 2017, Apple announced plans to purchase Shazam for a reported $400 million, despite the fact that the British company generated only £40.3 million pounds for that year. The deal was completed in September of 2018. Since that time, Apple has not yet reported revenue figures for its new subsidiary, and the future of the Shazam service is up for debate.

Known for its music service, Shazam lets users listen to and identify songs by a process called tagging. Upon identifying the song, the service returns details such as the artist’s name, song title, album and where one can access that song. Shazam links song purchases to major providers, such as Apple, Google, and Spotify, and receives a portion of each purchase for the referral. Prior to its acquisition by Apple, Shazam included advertisements as an inherent element of its app platform. The company had been a part of hundreds of ad campaigns, with fees for each campaign reportedly costing between $75,000 and $200,000 and runs for a couple of months. However, immediately following the completion of the acquisition in September of 2018, Apple announced plans to eliminate all advertising on the Shazam platform. At the time of the acquisition, Shazam also offered a paid premium version of its app, Shazam Encore, which offered users an ad-free experience, access to full music tracks through a partnership with Spotify (SPOT) and more.

A major source of revenue, Shazam estimated in 2013 that digital sales generate $300 million annually. Of the 20 million tags per day, 5 to 10 percent result in a purchase, the majority of which are music, while TV shows, films and apps continue to grow within Shazam’s portfolio.

Sending app users to Apple Music and other online music sales platforms is just one of the ways that Shazam generates revenue through referrals. With its recent focus on television, advertising and other media formats, Shazam now allows users to gain referrals in other fashions as well. The company receives referral fees when users target advertisements through the app. Shazam also introduced a camera feature which allows users to scan images like QR codes to unlock additional offers, special discounts, interactive media experiences and more. Shazam earns fees from referring customers to this content as well.

While Shazam’s revenue-generating potential through referrals is not negligible, it could be that the real value of the company to a tech giant like Apple is in its vast stores of user data. Shazam has a large and dedicated user base that utilizes its app in more than 20 million searches every day. Through these searches, Shazam not only helps users to identify songs, movies, television programs, advertisements and other content, but it logs massive amounts of data regarding customer preferences and selections as well.

This is part of the reason why analysts have been left guessing how Apple might utilize Shazam going forward. It could be that Apple will continue to develop Shazam’s capabilities and offerings, even across competing platforms like Android, in order to better gather search data. If this is the case, eliminating barriers to use (like the paid premium platform and advertisements), even if it means reducing Shazam’s revenue, would be a small price to pay for the potential for much more information.

Given its near-20 year history and its sizable base of dedicated users, Shazam has a significant leg up over its competition. However, the threat of new services is very real. Over the years, Google and other tech companies have worked to utilize artificial intelligence (AI) and machine learning to develop similar tools to Shazam’s in an effort to compete with the app. Startups like SoundHound and Musixmatch have entered the field as well, hoping to provide similar services to Shazam in an effort to carve out a user base. In order to retain its dominant position, Apple will need to continue to develop Shazam’s capabilities and offerings.