Why Apple Is Buying Shazam

by Trefis Team
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Apple (NASDAQ:AAPL) recently confirmed that it is acquiring Shazam, the app that allows users to identify songs, movies, TV shows, and commercials using short audio clippings. While the deal – which is reportedly worth $400 million according to Recode – may appear to be a steep price for a relative niche service, it is well below the reported $1 billion+ valuation that the app saw in its most recent funding round. Moreover, Apple stands to benefit in multiple ways from the acquisition, which could tie into its broader augmented reality and artificial intelligence technologies, which we see as crucial to growing its Internet services business.

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Shazam Has Struggled With Monetization

Although Shazam emerged as one of the most popular smartphone apps on both Android and iOS, with around 1 billion downloads as of last year, the company struggled to find a viable business model, which restricted its revenues to just about $54 million in 2016. While Shazam initially started off by earning commissions from digital music services, who paid it for downloads of songs that users identified via the app, the company also branched off into advertising, leveraging its media recognition technology.

Shazam’s Core Music Features Could Help Apple Music

While Apple already uses Shazam’s music identification capabilities with its Siri voice assistant, it’s possible that the company could integrate Shazam more deeply and seamlessly with its products and services. For instance, the latest Google Pixel smartphones have an always-on song identification feature that displays song names without being asked. It’s possible that Apple could try such an implementation on its iPhones. Apple could also use Shazam to improve its Apple Music service. While Apple Music has grown rapidly since its launch about three years ago, adding about 30 million paid users, it is just about half as large as market leader Spotify. Apple could come up with unique features to separate Apple Music from other streaming players. For instance, Apple could identify key elements of a song and suggest similar songs that a user may like using its algorithms. Separately, it’s possible that Shazam’s broader algorithms could also be useful to Apple, helping to make its AI services such as Siri better.

AR Features Could Also Have Value To Apple

While Shazam is best known for its song-matching capabilities, Apple could also benefit from Shazam’s increasing push into augmented reality technology. Shazam launched a visual recognition engine in 2015, following it up with an augmented reality platform in March 2017 that allows users to point their phone camera on advertisements and other physical products using the Shazam app, triggering product visualizations and 360-degree videos. Apple has been investing heavily in this area, with CEO Tim Cook indicating that the AR technology could present Apple with a big growth opportunity. The company’s latest iPhone X and 8 are optimized for AR applications, and Apple’s ARKit APIs have given the company an early lead in courting AR developers.

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