Shazam Business Model

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Shazam began as a crazy idea between friends in 1999. At the time, the technology that makes it work didn’t exist, the digital library of music it needs didn’t exist and there wasn’t a business. “The way Shazam started off its business model was that after five SMS ‘tags’ you had to pay for it,” said Marovac. “Then it moved into lead-generation for MP3s, then it became an.

“We went through a business model transformation to make advertising our largest source of revenue and our biggest business,” Shazam CEO Rich Riley told Yahoo Finance. “This augmented reality. May 07, 2019 The co-founder of Shazam talks about starting a business that is personally and financially fulfilling. The digital library of music it needs didn’t exist and there wasn’t a business model.

Shazam finally found a buyer: Apple. Ever since its affiliate sales revenue model crumbled with the onset of streaming (there’s no business in an affiliate fee on a $0.01 stream), Shazam has been trying to find a new business model. It doubled down on providing tools for TV advertisers but never got enough traction for that to be a true pivot. Shazam’s problem has always been that it was a feature rather than a product – as so many VC funded tech companies are. The fact that it sold for $400 million – just 2.8 times its total investment ($143 million) and well below its previous pre-money valuation of $1 billion, illustrates how much value has seeped out of Shazam’s business. The Apple acquisition though, is one of the few ways that Shazam’s ‘hidden’ value can be realised.

Cool tech without a business model

Shazam was a digital music pioneer. I remember getting a demo from one of the founders back in the early 2000s, and I was blown away by just how well the tech worked. However, quality of tech was never Shazam’s problem, and once the app economy appeared it also had a very clear and compelling consumer use case. Despite competition from challengers in more recent years – especially Soundhound, which has also been compelled to pivot but may now decide to double back down on its core competences – Shazam continued to be the standout leader in music recognition. The irony is that its use case is stronger now than it was back in the download era because people are listening to a wider array of music than ever before. The problem was a lack of revenue model.

Shazam tried to position itself as a tastemaker, with its charts becoming useful heat indicators for radio stations and streaming companies. Labels soon learned to game the system with ‘Shazam parties’ but even without that challenge, this still did little to help Shazam build a business model. Apple however, saw beyond the music recognition and Shazam now gives Apple a music recognition engine. Shazam is Apple’s answer to Spotify’s Echo Nest.

Apple Music needs growth and engagement

Apple, which recently passed 30 million subscribers, continues to lag behind Spotify’s growth. Apple Music is adding around half a million new subscribers a month, while Spotify was adding close to two million a month up until it announced 60 million subscribers in July. The fact Spotify hasn’t announced since then may point to slowing growth, but my money is on a big number being announced in the next five weeks.

Apple’s weekly active user (WAU) penetration is far behind Spotify’s, indicating that Apple needs to do a better job of engaging its users. Better playlists, recommendations and algorithm driven curation all help Spotify stay ahead of the curve. Now, Apple will be hoping that Shazam will provide it with the tools to start playing catch up. And that’s not even mentioning the user acquisition potential Shazam could have when it switches to exclusively pointing to Apple Music. Game on.

Shazam Business Model
The co-founder of Shazam talks about starting a business that is personally and financially fulfilling.
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I had the pleasure of catching up with Dhiraj Mukherjee, the co-founder of Shazam, an app that has been downloaded over a billion times and tells you what song is playing in the background. Users just hit the button, let it listen and “Shazam!” -- turns out you’re enjoying a cheesy David Guetta co-lab you normally wouldn’t admit to liking.

Apple loved this technology so much they had to have it and in late 2018 they acquired Shazam for a whopping $400 million and integrated it with their digital assistant Siri.

So how did this business get started? Shazam began as a crazy idea between friends in 1999. At the time, the technology that makes it work didn’t exist, the digital library of music it needs didn’t exist and there wasn’t a business model for making any of it profitable even if these things did exist.

But that didn’t stop the four founders from getting excited. The three MBA graduates and a computer science Ph.D. decided to forget high-paying jobs and start solving these challenges and building a business at the intersection of music and technology. The full story of how Shazam became so successful is nothing short of remarkable and lends itself to a book rather than an article, but here are seven key ideas that came out of the enjoyable chat I had with Dhiraj:

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1. When starting a business, co-founders should have different skills but the same values.

Dhiraj explained, “The four founders each brought unique skills and thinking styles to the table. Chris Barton and Philip Inghelbrecht were inclined to rapidly solve problems and get things done at pace, whereas I am a strategist who wants to know how will it scale.” His fourth co-founder Avery Wang was a computer scientist. “He intimately understood digital signal processing, which was essential to the technology.” Beneath the differing skill sets and thinking styles was a complete alignment to a set of values that made the chemistry work: fairness, fun and work ethic are among the top Dhiraj listed as common values.

Related: The Complete, 12-Step Guide to Starting a Business

2. Sometimes “foolish” ideas are huge opportunities.

Shazam wasn’t an obvious opportunity and, in fact, the technology that would really make it take off would not be around until 10 years after the company launched. Shazam instinctually felt right to the founders and it held their excitement. Rather than following a “money-making trend” they did something that they thought a lot of people would love.

'I had a spreadsheet of all the things that needed to happen for this to work and the probability of each thing happening,' Dhiraj says. 'When I calculated the likelihood of everything working, my spreadsheet said there was a something like a 4 percent chance of success. Somehow it didn’t put us off though.”

3. Hire people who are better than you.

As Shazam grew, Dhiraj hired his own boss Vijay, a talented and experienced music marketing executive. A year later he helped hire his boss’s boss, who took over as CEO of the company. Dhiraj remarked, “The founder of the company has a unique ability to hire people better than oneself without threatening their own position for the long-term best interest of the company,” Dhiraj says. “We were doing something cool that combined technology and music, that helped us get a lot of really talented people who wanted to see this succeed”.

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4. In every great challenge, there's a hidden opportunity.

Shortly after Shazam raised its first round of capital, the dot com bubble burst, the NASDAQ was down 70% and big investments in internet companies weren't happening any time soon. “This was a massive problem in one sense but it also presented us an opportunity because suddenly some of the best computer whizkids were unemployed and looking for an exciting project,” he reflects. Shazam hired remarkable people using stock option incentives at this time. This rich pool of talent helped demonstrate Shazam was a worthwhile investment once the VCs had regained their appetite for deals.

Related: How to Start a Business With (Almost) No Money

5. Take people on the ride.

Dhiraj says, “In hindsight, there were times I expected people to be mind readers. Lot’s of exciting things were happening in the company but I wasn’t communicating them to stakeholders well enough.” When the company culture was at its strongest, Dhiraj described it as a “ride” that everyone was on. He said it’s so important to ensure everyone feels they are on that ride with you. Dhiraj urges founders and CEOs to take time to communicate with all of the stakeholders and not to assume they are aware of all the progress you’re making or challenges you’re facing.

6. Luck plays a role.

About his success starting and selling a business, Dhiraj remarked, “Let’s face it, we had a lot of good luck.” Not everything can be planned for and even the best plans can come undone. But sometimes the winds of fortune gust in your favor. With this in mind, it’s important to enjoy the journey every step of the way; things may not work out as you hope or you might make a fortune doing something that you started just for fun.

Shazam Business Model Canvas

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Shazam Business Model

7. Do something that matters.

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After leaving Shazam’s day-to-day operations, Dhiraj joined the charity Save the Children to assist in creating more innovative approaches to fund-raising. He utilized his entrepreneurial experience to bring fresh ideas to a big established organization. He now believes some of the best opportunities for entrepreneurs exist around environmental and social issues that need to be solved. “Today I’m interested in projects that have the potential to make a positive impact more than anything else,” he says regarding his investments.

I asked Dhiraj what it was like selling Shazam to Apple. The deal had taken around a year to come together and needed regulatory approval which stretched on for months. “One night my phone started buzzing with dozens of messages congratulating us,” he remembers. When he clicked on a link his friend had sent, it went to an article in the paper announcing the deal had gone through. It was, he said, 'a fairy-tale ending to a magical ride”.