Business Model Of Shazam

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Founded By Philip Inghelbrecht, Avery Wang, Chris Barton, Dhiraj Mukherjee in 2000, Shazam a music identification app has scripted its success story.

Starting as a call-in service,Shazam has rapidly expanded to reach the forefront of music identification, having been downloaded over 500 million times according to the company. Of those half a billion downloads, one hundred million are active, once-a-month users.

User's gratification

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. In 2014, Shazam expanded business ventures from music to include television. Shazam’s service operates similarly across both mediums. Shazam’s mission is to help people recognize and engage with the world around them; to identify and tag every single song, music, and TV show you may come across.

Shazam's Business Model

Although it was founded in 2000, Shazam has experienced exponential growth in just the last few years owing to increased  role of digital technology in individual lives, 

Shazam has a freemium business model, which requires a thorough understanding of the product, the industry, and the consumer. Shazam launched its free music discovery product with its core values and visions based on product development rather than focusing on generating revenue. The freemium pricing model has enabled massive user acquisition, growth and a recognizable brand by eliminating price barriers for the users. which consequently created the opportunity to profit through partnerships when Shazam users purchase songs they found through the application on itunes. 

Referral fees

Shazam links song purchases to major providers, such as apple, google, and spotify, and receives a portion of each purchase for the referral. .Whenever somebody shazams a song, can successfully identify what it is, and buys it, the company gets a cut of the purchase. The company is sending 1 million clicks daily to these streaming services who do pay it for the traffic and conversions when they make a purchase.

Record Company provides songs to Shazam to analyze and build database. Record company gets paid by radio stations to play the song User listens to song on the radio and uses Shazam to find title. User buys song & Shazam gets a cut from the sale. Of the 17 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. 

Advertising

Shazam operates primarily through its mobile app, and advertising is an inherent element of its app platform. It generates the bulk of its revenue through advertising. Shazam shows ads to users while they scan their environment to identify a song or other audio playing nearby. The app also shows smaller display ads on the page where the identity of the song is revealed. and even when Shazam fails to identify a bit of audio, usually due to inadequate time or quality of sound, it shows users an ad. The company has been a part of 450 ad campaigns. Each campaign costs between $75,000 and $200,000 and runs for a couple of months. On its own, advertising generates a multi-million dollar business; however, Shazam hopes TV services will become its primary source of revenue. 

Recently, Shazam launched a new sales platform resonate to help TV networks and advertisers connect with consumers on their smartphones and tablets. Networks and brands can integrate the app within TV shows, delivering purchasable content to users.  As TV advertising remains a multi-billion dollar industry, Shazam expects its latest venture to rapidly increase revenue and growth for the company.

Investors 

With a majority of income generated from music referrals and advertising,Shazam sources investments to expand current and new business ventures. Much of the business’s operating revenue has come from external funding, starting with $1m from angel investors in 2000, and $8.5m from venture capitalists in 2001.As of 2014, the company was valued at $500 million dollars. 

Despite having never made a profit in the sixteen years since it was founded, music identifying app shazam is now worth $1 billion, thanks to a new round of fundraising.

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. Likewise, Sony has purchased a $3 million stake in Shazam .As Techcrunch reported then, Shazam raised $30 million in equity funding early last year at which point the company’s valuation had surpassed $1 billion. Future investments and funding will secure Shazam’s expansion and increase means of generating revenue. 

Partenership With Brands

The company has been embarking on partnerships with other app makers and social media platforms in a quest to drive up engagement and keep winning over users. It has made quite a few additions and changes to the app lately in an attempt to make it worth more not only to current users, but also to brands. The company recently forged partnerships with large retailers that involve push notifications whenever someone uses the app in a store. If a customer shazams a song while shopping in select retailers, an inaudible watermark will send a coupon to that person’s phone, encouraging further shopping. This is just one of several ways Shazam is looking to grow on the b2b side of things. The new partnerships with brands and innovative ideas with advertising should help increase the company’s revenue flow and then their profitability in due time.

Diversification 

Shazam is not only your solution provider. It makes use of your smart phone’s geo-location to serve both music labels and promoters. Let’s say a significant number of people are requesting an artist via Shazam that hasn’t been signed yet. This information is value in gold for labels to professionally support musicians that are already on the radar of a somewhat solid fan base. Furthermore, promoters can predict where it makes sense to book gigs, based on track record. They know in which particular places artists have been ‘shazamed’. Backed with facts and figures, they can book tours especially in those cities were a good deal of support is guaranteed.

Conclusion

85 million monthly active users and a host of lucrative new partnerships, the music startup appears to be on its way to an IPO. Shazam’s concerted  efforts to diversify the business by developing new applications of its technology for brands, broadcasters, and theaters & the seismic shift from an affiliate model to the current approach of multiple high-profile revenue streams is a reflection of how Shazam has managed to face competition & to navigate market changes ahead of the curve. It is still investing in other forms of augmented reality,and stretching the bounds of what brands and customers can do with just their phone’s technology. As increased technology allows for greater means of reaching large audiences, digital services like Shazam will continue to grow and generate revenue. 

For fledgling startups, Shazam should serve as a reminder that success doesn't come overnight.