Hence, when Apple confirmed on Monday (Dec. 11) that it acquired Shazam -- after a competitive bidding process that reportedly included Snap and Spotify -- the dent it created in the music industry was equal parts financial and cultural. In hindsight, the acquisition was a long time coming: Shazam has been integrated with Siri since 2014, and Apple takes pride in the power of its TV commercials to boost sales for artists from Matt Costa to Marian Hill, a phenomenon that would be nearly impossible without Shazam. As Apple carefully expands on its original video strategy and its relationships with Hollywood, Shazam will also prove to be a crucial stepping stone towards owning the entire media consumption cycle.
"To the extent that all the major streaming services have the same offering -- $10 a month for tens of millions of tracks -- they have to start asking themselves what their true differentiation and ‘why-us’ proposition is to the consumer," Larry Weintraub, chief innovation officer and president of music at The Marketing Arm, tells Billboard. "If you’re Apple, your priority is not just in the device and hardware business, but also increasingly in the original content business. And if you’re creating and distributing video content with music in it, and you want people to subscribe to your music service to listen to those songs after the fact, Shazam is a key part of that ecosystem."
What's more, Shazam has recently lost momentum in convincing the music industry of its viability as a standalone product, despite surpassing one billion downloads last year and sending over one million daily referrals to streaming services including Spotify and Apple Music. In interviews with Billboard, few industry execs seemed surprised at Shazam’s deflated acquisition price tag, reported at $400 million (versus its previous Silicon-Valley valuation of over $1 billion).
The app’s stagnation has little to do with its UX or underlying tech: the original audio detection algorithm, devised by Shazam founder and chief scientist Avery Wang, is well-respected in academia and has been cited over 650 times on Google Scholar.
Instead, as so many music startups have done, Shazam stumbled because it confounded cultural influence with commercial viability. After proving its technological ability to predict hits -- repeatedly picking up on Billboard Hot 100 hits as early as six weeks in advance -- Shazam began licensing user data to record labels that were interested in early access to emerging trends. In 2014, Warner Music Group even launched a sublabel that only signed artists discovered through Shazam and split recording revenues between the two companies.
Yet, Shazam could not turn a profit with its data-licensing model, and the WMG sublabel never even launched, sources tell Billboard. Ironically, the app finally reported profitability in late 2016 by venturing beyond music toward multi-screen advertising, partnering with the likes of Nike and Coca-Cola on "Shazammable" TV commercials that could unlock bonus content via the mobile app. When Shazam announced its own TV show Beat Shazam on Fox TV, however, it was viewed by industry insiders less as a smart business move, and more as a desperate scramble for money.
In this vein, Shazam’s value to Apple may revolve less around the audio recognition technology itself, and more around the vast swaths of historical user data that can enhance Apple's music discovery and recommendation offerings. Surprisingly, Apple Music has struggled to compete on the data front in the streaming landscape, lagging behind Spotify on its quality and depth of algorithmic recommendations despite acquiring music data startup Semetric in 2015.
If integrated effectively, Apple’s ownership of Shazam data could flip this script by positioning the corporation as a genuine music-industry leader, rather than as someone casually joining the streaming bandwagon. For instance, Apple Music could monitor Shazam activity around certain songs and artists before they are even added to the streaming service. If Apple becomes as open as Shazam to sharing such data with labels (which, if history is any indication, is highly unlikely), content creators and owners could have access to much richer datasets around individual songs, beyond the narrow focus on skip and play-through rates that currently pervades the business.
Shazam could also be a key weapon for Apple as it enters the voice-enabled device market with its HomePod -- whose release is already delayed until after the winter holidays, robbing Apple of a key opportunity to compete with Amazon and Google for the connected home.
The discovery-oriented use case would be similar to Spotify’s messaging around its acquisition of audio recognition startup Sonalytic in March 2017. In a statement at the time, Spotify claimed that Sonalytic’s technology would be used primarily to “enhance Spotify’s personalized playlists, ensure Spotify’s catalog remains spam free, and match songs with compositions to enable faster payouts to publishers” -- with no plans to incorporate audio detection explicitly into its UX.
While Spotify is expected to be shut out from Shazam referrals in the near future, it’s important to note that Shazam is far from the only player in the audio recognition game. There are a handful of competitors -- from independent apps like SoundHound to corporate-owned solutions like Alexa and Google Assistant -- each of which takes a slightly different approach to answering the million-dollar question, “What song is this?”
What's more, several Asian streaming services actually have music recognition services already built into their platform, including Chinese services KuGou and QQ Music as well as Japanese services AWA and KKBOX. Sources tell Billboard that Deezer is also beta-testing its own audio recognition solution -- suggesting that the market for such solutions will only continue to grow globally in the near future, independent of Apple’s ecosystem.
In addition, Apple's acquisition of Shazam likely will not interfere with the corporation's other data partnerships. For instance, Apple Music and iTunes Match currently use Gracenote MusicID to match song files in users' iTunes libraries to copies on Apple's servers, a slightly different fingerprinting technology from that of Shazam.
"The hold-up-your-phone-in-the-bar use case for Shazam requires one particular type of fingerprint, whereas comparing two mp3 files for a service like iTunes Match is not about a quick lookup of a song excerpt, but about speed and accuracy against the entire song at once," an executive at one of Apple’s many data providers tells Billboard, speaking under the condition of anonymity. "For the latter case, it’s important to do things like differentiate between an original release and an extended radio mix and make sure the right version of the song is coming up."
Therefore, not only will the independent audio recognition market stay around, but Shazam may be one of several acquisitions Apple needs to make to truly get ahead in music discovery and control the entire funnel. "There's no silver bullet in music discovery," the above exec continues. "You need not just audio and engagement signals, but also other descriptive metadata around factors like mood, style and subgenre that can help give you insight into the ‘why’ of discovery, not just the 'what.'"
As the streaming landscape becomes ever more competitive and tumultuous, the services that will win out in 2018 will be those that can most effectively frame this elusive question of "why."