What would Apple want with Shazam?

Shazam is one of those companies that seems to have been around forever, and that when it first appeared, in 1999, seemed like magic: actually, it uses acoustic fingerprints. It initially worked via a phone call to a short number that listened for a maximum of thirty seconds to the piece of music you wanted to identify, replying with the name of the piece via SMS. Since converting to app it has consistently remained in the Top 100 download rankings.

TechCrunch reports that Apple is in talks to acquire Shazam it for some $400 million, well below its unofficial valuation based on investment rounds, which was estimated around a trillion dollars. The company had previously raised $143.5 million over the course of some 12 investment rounds, involving funds such as Kleiner Perkins, DN Capital or IVP, along with companies such as Sony Music, Universal Music or Access Industries (owners of Warner Music). Apple’s acquisition would give the funds a much lower return than they would have expected, but would throw the weight of strategic investors, mainly record companies, behind Apple Music. The most likely reasons for Apple’s purchase would be that Shazam, most of whose income comes from Spotify, Play Music or Apple Music itself, would suspend its agreements with competitors and become a specific music localization service for Apple, which would also save on those commissions.

Why sell a successful, popular company for an amount that is significantly lower its investors estimated? Because commissions are not enough to sustain those estimations, and after several years that have shown this, those estimations needed to be brought up to date. And while it’s true that we use Shazam on our smartphones or our smartwatch to find out what we’re listening to, very few of us then go on to buy the piece of music.

In 2016, after nineteen years in existence, Shazam turned over barely $54 million, recording losses of $5.3 million, which explains the radical adjustment in its valuation and why it made itself an acquisition target. If by acquiring Shazam for a significant but significantly discounted price, from which we must also subtract commissions, Apple gets the million clicks a day the app sent to Spotify and Play Music and redirects a part of them to Apple Music, it will be consolidating its service, which currently has some thirty million subscribers, compared to the sixty million paying users out of a total of 140 million that Spotify has, and making itself a major player in global music distribution field.

At the same time, by integrating Shazam into its ecosystem, Apple learns a lot more about emerging musical trends and their wider impact. In 2016, the company announced that its app had already exceeded one billion downloads and that it had been used to identify more than thirty billion songs, data that undoubtedly interests the record companies and Apple itself. In addition, integrating Shazam will allow Apple to improve Siri, which can now be used to identify music, and will presumably be integrated into the HomePod, the smart speaker that the company, after an initial delay, plans to release early next year.

If the figures are confirmed, the purchase will be the most important Apple has made in this field since buying Beats for $3 billion in May 2014, suggesting the company plans to enter the music industry in a big way, a development that should concern, among others, Spotify, and very possibly, the record companies … even if they don’t seem to have noticed yet.

(En espa?ol, aquí)