Apple's Shazam acquisition: 3 things you need to know

The tech giant's pays $400m for the British ex-unicorn.

by Arun Kakar
Last Updated: 11 Dec 2017

Apple just doesn’t like being out of the headlines for long. Sure enough, the tech giant has just made waves by buying British music start-up Shazam for $400m (£300m). The music discovery app, which has been downloaded over a billion times, enables a user to identify music playing around them. In a shop and a tune catches your ear? Pop open Shazam and it’ll name the track complete with background information and streaming options.

Hold on, wasn’t Shazam meant to be worth $1bn?

Welcome to the world of app valuations. Shazam, which was started by two London-based entrepreneurs in 1999 as a phone line by the name of 2580, has undeniably been a success.

One of the first big mainstays on the App Store, it’s since gone on to become one of the most popular apps of all time, receiving $143.5m of backing from investors including Kleiner Perkins and Sony Music, which gave it the $1bn valuation - and the much-coveted title of UK tech unicorn.

But reality dooesn’t always like up to expectations. The company revealed revenues of only £40.3m in the fiscal year to 2017, raising doubt about the initial optimism surrounding its valuation. It also was the first year the company had posted (an unspecified, probably quite modest) profit after losses of £4m in 2016 and £16.6m in 2015.

CEO Rich Riley has hinted at a potential acquisition before, and revenues don’t look like they’re going to skyrocket anytime soon despite the company’s relentless pursuit of revenue streams.

Shazam gets money from clickthroughs and branding. After identifying a track, a user can listen to it in full on their chosen streaming platform, which will pay the app commision. It’s teamed with everyone from McDonalds to Kia with Shazam ads: users open the app when an ad is playing to direct them to more information about a product or offer. There’s also the string of partnerships with Samsung, Fox and yes, Apple to bring the Shazam technology and brand as a music aggregator (not unlike Billboard) to new platforms.

But none of them are as yet bringing in the big bucks - something Apple’s relatively low offer reflects.

So why does Apple want it then?

The Shazam deal draws instant comparisons with Apple’s $3bn acquisition of Beats in 2014, which formed an important addition to what is now known as Apple Music. Main rival Spotify is rumoured to be grooving to the tune of an IPO, and is also moving into new content spaces such as podcasts (a traditional Apple stronghold).  Apple needs to evolve quickly if it is to build momentum and topple the jolly green giant of streaming: Spotify’s market share as of November was a reported 35% to Apple’s second-placed 15.6%. 

Apple has attempted to move into video with concert and behind the scenes shows and acquired James Corden’s Carpool Karaoke to bring an established hit onboard. But it  still needs to find a way of increasing traffic beyond introductory offers: something Spotify does exceptionally well with its free, ad-supported option.

Shazam is a logical next step to get more people on Apple’s dancefloor. It has a large and active user base, and Apple can cut out the middleman by integrating it solely with their streaming service. At present, users can listen to a Shazamed track through a variety of sources, but Apple will most likely direct all of the listens through them, taking precious traffic away from its competitors.

Siri, meet Shazam

With the digital assistant market set to reach $15bn by 2021 according to Statista, it’s no surprise Apple is looking to bulk up Siri. Along with Cortana, Google and Alexa, it is a way to direct users towards products and information supplied by platforms that are simple, clever and most importantly, useful.

With Shazam in its roster, Apple will most likely look to incorporate its technology into the Siri platform in a deeper way than possible under the existing partnership between the two that has existed since  iOS 8 in 2014. If it is integrated into the Apple ecosystem, Shazam will present more opportunities than just song identification.

One of the most exciting things about the platform is the potential of its technology, with a recent SnapChat partnership using video highlighting how malleable it can be. As well as the tech, Apple is also bringing under their wing an exciting and innovative team of developers who have shown they can  generate revenue in interesting ways. That inventiveness might prove key to the virtual assistant market.

Image credit: Ryoichi Tanaka/ Flickr

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