Shazam: from text-based service to $1bn app in 15 years
Call a company “Shazam”, and it needs to be doing something magical.
Last week, the 15-year-old British business managed that, at least in part: a $30m (£19.9m) investment for just under 3% of its shares. That meant it became one of only half a dozen UK technology startups valued at $1bn or more – joining Powa, Wonga, Monitise, Zoopla and, as of Monday, money transmission business Transferwise.
Some 100 million people every month see Shazam fulfil what seems a magical task: answering the question “what’s that tune?” Founded in 2000 by Chris Barton and Philip Inghelbrecht, who were soon joined by Dhiraj Mukherjee and Avery Wang, the original idea was identify songs, and then “to make audio clickable, just like a web link”, according to Barton.
Shazam’s service is a mobile app which in the UK listens to a song and almost instantly tells you the track and artist name. It does so by identifying “spectral peaks” in the sound – a fabulously complex scientific problem, made even harder by tiny phone mics used in noisy pubs – and then offers you the chance to download it from iTunes, play it on Spotify, Deezer or Rdio, look up details about the artist and even buy a ticket to their next gig.
But when the entire music business worldwide is worth around £6bn, how can Shazam be worth one-ninth of it?
Andrew Fisher, who has been at the company since 2005 and is now executive chairman, insists the valuation is no magic trick. The simple description – an app for identifying songs – misses out the £200bn worldwide TV advertising market the company is targeting, starting in the US. It’s an equally simple idea: you’re watching an ad, and it says “Shazam now for more”. You activate the app, and get taken to a customised link.
“We now support every TV show on 160 channels in the US,” Fisher told the Guardian. “We can identify 85% of adverts, and we’re also looking at retail, where the public address system can say, for example, ‘Shazam this song now and get 25% off jeans on the second floor’, and also cinema.”
It’s that potential that investors are keen to back, he explains – not just the music-tagging service.
Shazam has come a long way since its earliest days, when the cutting edge of mobile phones was the Nokia 3210, with its greyscale screen and giant buttons. Scepticism about whether the service would work initially ran high; song identification was done by text message costing 50p and one executive at the 110 venture capital firms originally approached for funding said firmly: “I don’t see why anyone would ever use this”.
As it has turned out that statementranks alongside the record label executive who declared that “guitar bands are on the way out” after hearing the Beatles.
As of October 2014, Shazam had been used 15bn times to identify songs. Like Google, the company name has morphed into a verb. For a Hammersmith company that predates the iPod, iTunes and modern smartphones, that’s no small achievement.
Apart from Wang, who remains the chief scientist, the founders have now left and don’t have substantial holdings in the company.
But will people really pull out a phone to identify an advert? Fisher insists they do: “It’s starting to come through in the UK – we’ve had good results with Jaguar, Jeep and Cadbury’s,” he says.
It’s ideal for advertisers, he says, because there’s barely a pause between the viewer’s desire to know more, and interaction. “If you see an insurance ad, you might think ‘oh, I should get a quote’,” Fisher says. “But with Shazam, you see it, use our app, and you can connect right away.”
It’s most effective with live TV such as X Factor, but he says there are huge possibilities too in all sorts of adverts. The company is even looking at image recognition to increase that potential.
Yet for all the talk, Shazam made an operating and net loss in the year to December 2013, the most recent for which accounts are available, and revenues were down 45%. Fisher blames the investment required in that ad-identifying future – hiring people on both the sales side (to bring advertisers on board) and technology. “We were profitable in 2013 on EBITDA [earnings before interest, tax, depreciation and amortisation],” he says. “In 2014 we grew from 150 people to 250. We could turn profitable by stopping hiring. But right now we want to build to the biggest scale we can.”
That suggests that a stock market listing could be a couple of years away as it grabs for revenues before others such as Google, Facebook or Twitter can compete – though Fisher says Shazam has no direct competitors. But the company’s shift away from its roots, and into advertising, has ruffled some feathers. Former staff, speaking on condition of anonymity, told the Guardian that the hiring of ex-Yahoo staff in the past few years hurt morale in tight-knit teams, and that below-average salaries made recruitment difficult.
In addition, the focus on making money out of TV advertising, rather than music, has shifted some jobs to the US – diluting what was a strongly UK-based culture. Meanwhile, Shazam remains one of the most popular apps on all mobile, and claims to be responsible for one-tenth of all download sales through links in the app when a song is identified.
Fisher insists that the move to streaming, which is supplanting downloads is not a problem because Shazam’s in-app links are a valuable billboard which companies pay to appear on.
Apple, Spotify, Deezer and Rdio all jostle for position, so that in different countries you’ll be offered different services on a song result, depending who has paid: “It’s very lucrative for us,” Fisher says of the streaming services’ positions in its app.
The future for Shazam now looks a long way from its origins.
• The 20 most-Shazam-ed songs
1 Avicii – Wake Me Up
2 Robin Thicke feat. T.I. & Pharrell – Blurred Lines
3 Gotye feat. Kimbra – Somebody That I Used To Know
4 Passenger – Let Her Go
5 Clean Bandit – Rather Be
6 Macklemore & Ryan Lewis feat. Wanz – Thrift Shop
7 Macklemore & Ryan Lewis feat. Ray Dalton – Can’t Hold Us
8 Daft Punk feat. Pharrell Williams – Get Lucky
9 OneRepublic – Counting Stars
10 P!nk feat. Nate Ruess – Just Give Me A Reason
11 Lorde – Royals
12 Katy Perry feat. Juicy J. – Dark Horse
13 Capital Cities – Safe And Sound
14 Lilly Wood & The Prick & Robin Schulz – Prayer In C (Robin Schulz Remix)
15 Milky Chance – Stolen Dance
16 Martin Garrix – Animals
17 Pharrell Williams – Happy
18 The Lumineers – Ho Hey
19 will.i.am feat. Britney Spears – Scream & Shout
20 John Legend – All Of Me