In this exclusive interview from our industry knowledge partner StrategyEye, Shazam CEO Andrew Fisher talks about music discovery; getting money from Kleiner Perkins; and how firms can build businesses around mobile.
How popular is Shazam?
The figures we have in the public domain are that 50m people have used Shazam. We on’t break down monthly users, but we are growing very rapidly. We acquire around 500,000 new users every week and have done since February this year.
Historically, Shazam has been a paid-for service exclusively and today we still have a
paid-for service in the UK [which costs]GBP0.50 (USD0.83) a time. That price point is higher because there is a physical call charge involved. We have now moved away from a fee-per-call to a subscription model. However, we also have services around the world where Shazam is free, such as on O2 in Germany on Motorola devices and Samsung devices or with Verizon in North America. But that is a wholesale model where we are paid to provide the service.
The first time we used our own balance sheet to bring Shazam to the market is the iPhone. Even that model will change to a ‘freemium’ model where there’ll be some element that is paid for and some element that is free. In our opinion there is not an advertising market today that can support music services on a free basis. There has to be an element of ‘paid-for’ in that.
However, we are optimistic about advertising, particularly mobile advertising. Mobile advertising is the ultimate measurable piece of inventory in terms of location and presence. Long term, we wouldn’t be surprised if our business was primarily funded by advertising, but we expect to keep a premium element to it as well. That will evolve over time as the mobile advertising market matures.
How does Shazam work?
We look at the peaks and troughs in the sound waves from each instrument and vocal
performance. We then slice up the song into five or 10-second pieces and measure the spatial difference between those sound waves to create a pattern which we call a fingerprint. Because of the way the technology works every performance has a unique fingerprint, so even two songs by the same artist recorded in different studios will have very subtle differences in the sound waves and that’s why we can identify this particular recording by this particular artist. If you have something like the Bee Gees singing ‘Tragedy’ or Steps singing ‘Tragedy’ you can then attribute the performance to Steps or Bee Gees, which is really important for the consumer because they specifically want to buy the Bee Gees’ performance.
How are you evolving ?
A few years ago most consumers would have probably seen Shazam as a ‘name that tune’ type of service. Now Shazam has evolved from a pure discovery service to one which connects the buyer and seller of music. That has really been driven by people starting to buy digital formats, with iTunes, Amazon MP3 and some of the subscription services. Consumers are being conditioned to buy digital and they have transitioned to buying digital on their mobile. That is primarily because the pricing has achieved parity, so it doesn’t cost you anything more now to buy an iTune over your mobile phone than it does on the internet. Also people have unlimited data tariffs, so there is no bill shock in terms of buying a piece of content for GBP3 (USD5) and then finding out you’ve been charged GBP10 (USD16.6) to GBP15 (USD25) to actually download it.
There have been a number of enablers that have helped Shazam evolve its business from discovery to connecting buyer and seller. What we are focused on now is the sharing aspect, which is why we’ve linked up with Twitter and Facebook and are integrated into the mobile Facebook platform. These networks perpetuate people finding something they like, being able to buy it and share that experience with their friends. We see that as a very strong business model in terms of getting more people to discover and more people to buy.
Who are your competitors?
We have more than 90% of the worldwide market in music recognition services. We don’t really have many competitors who have any traction in the market today. What competition we have helps in that there are other organisations educating people about music recognition category and discovery services on mobile.
It’s difficult for any single company to really drive the market. The way we see it unfolding is our partnerships with our business partners like Apple, Nokia and Vodafone, who have a marketing budget to promote these types of services. They can promote the Shazam brand and help us build our audiences, as well as build value for themselves.
How important is the iPhone to you?
We have had over 10m downloads of the Shazam application on the iPhone and we have built a profitable business around it led by advertising and selling iTunes. For us as a company though, that’s still only 20% of our user base.
We are not an iPhone company. We are deployed on Android, we are on RIM and we have been number one on the Nokia Ovi store for the last four weeks. We also have significant relationships with a lot of handset manufacturers. We are preloaded on Samsung, Motorola and Nokia devices. We work with a lot of the carriers around the world directly as well, like Vodafone.
What attracted Kleiner Caufield Perkins & Byers to Shazam?
Before they created the iPhone fund, Kleiner didn’t have a strong investment presence in mobile. They see mobile as a fast-developing category and we have all seen that accelerate since the launch of the iPhone. Kleiner were committed to look beyond the internet to new investment opportunities and we are the seventh company in the iFund portfolio. Part of it was mobile and the change of consumer behaviour to actually using interactive services on those devices and the business models that sit behind those.
The other part of it is Shazam. Kleiner are looking for game-changing companies that can really execute at scale on a global basis. In terms of our profile, while we have been around for a long period of time, really all of our growth has come over the last three years and it has certainly accelerated over the last 12 to 18 months. So I think the attraction for the Shazam-specific investment for Kleiner was the evidence we’re showing in the adoption of the service, plus the fact we’re profitable.
What was the incentive to take the money from Kleiner now?
The primary reason was because we recognise that we are transitioning to a global consumer brand, so we were really looking for somebody who had the best track record in terms of supporting such brands. Kleiner was behind eBay and is still on the board of Amazon. A lot of the well-known internet brands seen today are those that Kleiner invested in at a similar stage, as it has done with Shazam. Money is always important, but that was not the primary reason for partnering with Kleiner. It was actually for their expertise in building global consumer companies.
Our mission in life is to be ubiquitous. We would like Shazam to be on more than 100m consumers’ phones by the end of 2010 and that is the next milestone for the company. If we succeed, it will make us one of the biggest mobile consumer properties in the world. With a market forecast of 6bn devices by the end of 2011, it is still a very small proportion of the total handsets or consumers in the world. That is one of the differences between mobile and the web. The addressable market is far more significant around mobile, but nobody has really had or built a very successful mobile-oriented consumer business. Even people like Jamba are business-to-business as well as direct-to-consumer. We’re not saying we’re going to be the only one, but there’s certainly a significant market opportunity for a number of companies to build very big enterprises around mobile.