Why Apple just spent up to $400 million on song-identification app Shazam

Shazam CEO Rich Riley

Apple confirmed on Monday that it is acquiring the popular music identification app Shazam. The deal is estimated to be worth around $400 million, according to Recode.

Apple is not particularly acquisitive compared with other tech giants like Alphabet or Microsoft. According to Thomson Reuters, Shazam is Apple's fifth acquisition this year, but only its 68th over the life of the company.

So what did the world's biggest company see in Shazam? Here are several ideas:

Loyal users

Shazam has amassed a serious user base. The app has been downloaded more than 1 billion times. Shazam boasts more than 120 million active users, who use the app 20 million times each day, according to the company's own website. Its users are loyal, too. That loyalty could lead to more paying customers for Apple's own services, like Apple Music.

Recurring revenue

Founded in 1999, Shazam was a rarity in music-tech: a profitable company. 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.)

Shazam also gets paid to refer traffic to Apple, Spotify and other digital music providers. The idea is that a user identifies a song, then is encouragsd to go stream it on Spotify or Apple Music, or download it from the iTunes store.

Apple has been talking up its services business to Wall Street, and it wants to be seenas more than a maker of beautiful electronics. So makes sense for the juggernaut to invest in a software brand that already has recurring revenue and loyal users in dozens of countries.

Data

With its large user base comes a staggering amount of data, and data is the new oil. Shazam knows what people are listening to, where and when, and how those trends are shifting over time.

With this kind of attentional feedback, artists, labels and other businesses can learn where fans are listening in the real world, and make better decisions about where to promote their songs offline.

Intellectual property

Shazam faces competition, including from SoundHound and China's QQ Music. But Shazam has been granted over 200 patents around its audio recognition and other technology.

The app is best-known as a song identifier, but Shazam can also be used to scan movie posters or other images to "unlock" extras, like behind-the-scenes video clips or augmented reality content from a celebrity or brand.

Now all of that intellectual property in audio recognition and advertising becomes Apple's.

Apple Music, Apple TV and other iOS apps could take advantage of Shazam's technology by allowing sound or image identification as a feature within them (much like Snapchat uses Shazam today).

We reached out to Apple for more information about how it plans to integrate the Shazam team and technology after the acquisition is completed. Company representatives were not immediately available to comment.

CNBC

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