Shazam Proves That Patience Pays Off
Is there anything Shazam can't do? The music discovery app added a television service last week, enabling users to access exclusive content such as links, photos, or music when they "Shazam" a commercial or show. (For the uninitiated, users tap a button on the app while a song or show is playing on a nearby stereo or TV; the app recognizes the audio and displays related content.)
Then on Wednesday the U.K.-based startup announced it was launching its own label with Warner Music Group, an impressive feat given how reluctant major labels have been to work with tech companies until recently.
Now, with a $500 million valuation and $72 million in funding, Shazam is proving that for entrepreneurs, taking the long view can really pay off.
Despite operating in a saturated market, Shazam has differentiated itself by strategically cozying up to other brands, often outside the U.S. Last April, the company temporarily merged its 27 million-track database with the 1 million-track library of Saavn, the Spotify of South Asian music in India. That gave Shazam access to Saavn's 10 million monthly active users, and helped Saavn compete with similar services in the region while raising its profile in the U.S.
Meanwhile, Shazam has nurtured partnerships stateside as well. In September, the startup announced a tie-in with Jimmy Kimmel Live, connecting fans of the late-night talk show to content such as audio downloads and Kimmel's YouTube channel. The following month, Shazam partnered with Fox to give fans of the reality series X-Factor another way to vote for contestants and buy songs from the show.
Shazam probably wouldn't be pursuing these partnerships if it didn't have plans to go public, something Andrew Fisher, the company's executive chairman, alluded to in an interview with Mashable. "We are growing incredibly quickly," he tells the site. "Part of our need is just to buy capacity to support this on-ramp of users and people spending more time on the service. The second part is to innovate faster."
The plan seems to be working. With roughly 85 million monthly active users, Shazam has enviable reach and the makings of a viable business in the long term, says Vicki Nauman, the North American president of 7digital, a digital music distributor.
"When you consider how much they've achieved in scale with just music and a little bit with the other media types, I absolutely think they're going to scale," Nauman says.
However, the most valuable lesson from Shazam's rise to prominence is how it took its time to get there, similar to fellow music startup Pandora. "People who haven't been in the industry might look at them and say, 'Wow, that just happened,'" says Nauman, noting the company launched in 2009. "But in the early days, they were running all over the world. And for many, many years there was a lot of criticism that they were crazy and didn't have a business model."
For fledgling startups, Shazam should serve as a reminder that success doesn't come overnight. "[A lot of the startups I work with] think they're going to become Instagram in a year, and it's just not possible," Nauman says.
As part of the deal with Warner Music Group, Shazam will launch its own label imprint for developing unsigned artists and give WMG a key to its valuable trove of customer data. Shazam likely will have first access to exclusive WMG content, which will no doubt stoke user engagement, encourage more downloads of the app, and help artists find creative ways to get discovered.
It's the sort of win-win partnership that Nauman believes will set the standard for music startups going forward, especially now that record labels are warming to them. "Major labels like Warner Music and Universal Music are both much more open to new ideas than ever before," she says. "This is an essential step toward keeping music relevant in our technology-driven world."
JILL KRASNY | Staff Writer
Jill Krasny is a staff writer for Inc. magazine, where she covers the intersection of entertainment and startups. Prior to Inc., she was a writer for MTV and Esquire and an editor at TheStreet. She is a graduate of the University of Southern California with a degree in communication. She lives in New York City.