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The Story Of Shazam: The Innovation We Didn't Know We Needed Today, Shazam has achieved over two billion downloads, and there are over 300 million monthly active users.

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Lucidity Insights has launched Startup Spotlights, a podcast series that has been kicked off with an interview with the founding CEO of Shazam, Chris Barton, on the enterprise's genesis story.

Now, if you don't know what Shazam is, you've likely been living under a rock; that, or music is just not your thing. Shazam was founded on a deceptively simple desire: imagine hearing a song you like, perhaps in a noisy bar, at the mall, on the radio, or at your friend's wedding, and wanting to find out who the artist is and the name of the song. Before Shazam, we were left with one option, which was to ask those around us if they knew who was playing. Barton imagined an entirely different reality. "What if," he asked, "you could just hold up your phone in a noisy bar, and discover the name of the song playing in the background within seconds- through a text message?"

With the technology available today, this seems like a simple feel-good app, but the Shazam story is complex and revolutionary, because it was established in the year 2000, nearly a quarter of a century ago. This was during the dot-com bubble, seven years before the first iPhone was launched, which paved the way for smartphones to become ubiquitous. This was a time when Nokia was the most popular mobile phone brand, and the extent of the functionality of its devices was to send each other text messages through its short message service (aka SMS), or to play a game called Snake. The truth is, Shazam was created eight years before the world knew what an app was. Shazam was even established a year before the first iPod was released, and three years before the iTunes Store came into being, where hundreds of thousands of songs were catalogued on a database.

RIDING THE (MOBILE PHONE) WAVE

During his MBA at the University of California, Berkeley in the late 90s, Barton had been observing the rapid adoption of mobile phones across the US and the developed world during that time. We're not talking about the adoption of smartphones here though; we're talking about basic, "dumb" cellphones. The rate of adoption around the world was unlike anything we had seen since the adoption of television. We have seen similar archs of technological adoption since then, such as the rapid adoption of the internet in the late 90s and early 2000s, and again, the rapid adoption we are now seeing of artificial intelligence (AI) through the advent of tools like ChatGPT. Barton thus saw an untapped potential that extended beyond calls and texts, laying the foundation for Shazam. So, he embarked on a mission to create a service that could identify music from brief audio clips alongside his friends and future co-founders Dhiraj Mukherjee and Philip Inghelbrecht.

"Someone once told me, 'You invented an app eight years before apps existed,' and it blew my mind, because I had never thought of it that way," Barton recalled. "Obviously, I didn't think of it as an app at the time, because there were no apps." Barton then explained that at the time of establishing Shazam, he had seen a graph of what percentage of people had mobile phones, and it might have been 40% or 50% of people. "A couple of years after I came up with the idea of Shazam, it was maybe 70% to 90%," he continued. "Suddenly, everyone was getting mobile phones, so I was genuinely fascinated by the opportunity." In the podcast, Barton goes on to detail the various challenges of developing the technology to get this idea off of the ground, and to prove a viable business model. The first hurdle was the technical challenge, as they quickly discovered that there was no existing technology they could cobble together to make this dream a reality.

"There was no technology that could do it, and there was also no expert PhD audio signal processing person that said, yeah, I could build that for you. So, at that point, there definitely was concern, I would say, from all my co-founders," he laughs. "Like, wait... hold on, we're building a company using a technology that we haven't invented, and no one knows how to invent?" That's when they brought on a Stanford PhD student in music-related digital signal processing, Avery Wang, to complete their team, and who said he was willing to give it a shot, but was himself skeptical about the feasibility. The challenge with the technology available back then was that it could only recognize music from clean signals, typically used by radio stations with small databases of about one hundred thousand songs, and noise cancellation technologies on mobile phones were designed to enhance human voices while suppressing other sounds, including music.

But after years of development, thanks to Avery and the team's commitment and perseverance, Shazam finally came to be, but as a music recognition service that is quite different from what we all know and love today. The first iterations of Shazam required users to dial a number through their cellphones, raise their phone up to the music, and then receive a text message with the name of the artist and the song. If it was successfully identified, the user would have to pay a small fee per song identified, which was billed to your mobile phone subscription service.

However, the challenges that Shazam faced were not only technical. Convincing investors of Shazam's potential was equally daunting, as traditional investors back then, especially those in London, where Shazam was established, were skeptical to say the least. "A typical investor was not the person you imagined using Shazam," Barton explained, "So, convincing them that everyone wants to use their phones to identify songs, and that's going to be an entire business in and of itself was very hard to do. One big venture investor watched the demo, and he literally said, 'I don't see why anyone would ever use that.' We were in a boardroom at the venture capital firm, and when he said that, I kind of thought for a moment and said, 'Let's go out this room right now, and we're going to go to the desks of all those people [who work for you], and we're going to just ask them if they would use this.' And it wasn't really an appropriate thing to do, especially in conservative London where he was an ex-Goldman Sachs investment banker. So, he was kind of put off by that a little bit. He sort of paused, but then he said, 'Well, I guess there's quite a large market for Barbie dolls, and I would never buy a Barbie doll.' And I thought that was insightful that he said that. Then the next thing he said was, 'I wish the entrepreneurs I funded had that kind of oomph.' Because it was like, yeah, well, I'm going to take you on." But Barton admitted with a smile that this investor did not come onboard Shazam's cap table.

Admittedly, there was also this question of "what problem were you really solving with Shazam?" It's a nice to have, at best. In today's world, there is a real question as to whether or not this innovation would have gotten the backing it needed to become what it is today. Nonetheless, the team's persistence paid off. Barton spoke about how he and his team primarily cold-called to secure angel investments from individuals in the music and telecom industry who could lend credibility to their venture. These angel investors included the former chairman of EMI Records and the CTO of British Telecom, who strategically boosted their credibility to approach even larger venture capitalists. These cold calling stories alone are so insightful, which includes how Barton looked up various executives' phone numbers in the phone book, and gave them an elevator pitch to secure a meeting.

SHAZAM'S MANY BUSINESS MODELS

Initially, Shazam generated revenue through a premium SMS model, charging users around 50 pence per song identification. "We did partnerships with all four major mobile phone companies to launch in the UK, because that phone number you dial was a four-digit number, 2580, and to get a four-digit number as your phone number, you have to have a partnership with a mobile phone company, because they control these short codes," Barton explained. "There's four major mobile operators in the UK: Vodafone, Orange, T-Mobile, and O2, and we needed that [same] number on all four mobile operators. If one of them said, no, you can't have 2580, of course, that would be a disaster, because now we'd have different phone numbers on different carriers. So, yeah, that was super interesting."

In a little over a year, Barton and the team had raised roughly about a million dollars in their angel round as a bridge loan, and then their Series A came in at US$7.5 million. Then, as the digital landscape evolved, Shazam adapted, forming licensing deals with mobile manufacturers like Samsung and Motorola, and partnering with iTunes for digital music sales. In-app advertising later became a significant revenue stream, diversifying Shazam's income sources. But this was an eight year journey where Chris explained that Shazam was close to shuttering its doors many times. "When a startup hits hard times, what you normally do is you start cutting costs, and you seek out more funding," Barton noted. "Those were the only two options. So, what we did was that we got creative about finding other funding streams."

Shazam went through many different business models, as the company was burning through cash for many years without reaching profitability. Just some of the different ways in which they were able to bring in revenue involved creating a technology for old Samsung phones to identify MP3 songs transferred onto phones and correctly labeling them; creating a white label native Shazam-type app called "MotoID" for Motorola phones in the time before apps, and it did something similar for AT&T as well. At one point, the company even sold its exclusive license to launching Shazam in Japan in the future. Plus, the team also built a B2B business that displaced the existing radio recognition companies working to get royalties paid out to artists, because their technology was superior to that was being used in the market. With respect to that service, it seems Barton's only regret when looking back on how the business was run for the 18 years to the run-up to Shazam getting acquired, was to focus on this revenue generator earlier.

Towards the end of this podcast interview, the host -Lucidity Insights Chief Content Officer Erika Welch- asked Barton: "If you were to go back, would you change anything?" He barely paused before replying, "The biggest thing I would have changed is that I would have put the peddle down earlier for these ancillary revenue streams that we went after. Specifically, the best one was the B2B business where we were monitoring radio stations for royalty societies. The lesson I learned was that it did bring in a significant revenue stream that helped us survive. If we had done it earlier, we would have had less crushing dilutive rounds with venture capital firms to stay alive." He continued, "Sometimes you have to do whatever it takes to survive, even if that means doing things that are not really the priority of the business."

It wasn't until the launch of Apple's App Store in 2008 when things shifted for Shazam. The App Store was a pivotal moment for many emerging technologies, but for Shazam, it was nothing short of life-saving. Apple had only selected a handful of apps to feature at launch, so once Shazam had built an app version of what it already had, it was set to receive this unprecedented visibility. At the time, Apple had also selected six apps to highlight the iPhone's capabilities, creating 30-second commercials for each, one of which focused solely on Shazam. "This was huge for us," Barton recalled.

The app thus quickly became a staple for music lovers worldwide through free advertising and word of mouth for many years, achieving eight million downloads per month without any advertising spend. Today, Shazam has achieved over two billion downloads, and there are over 300 million monthly active users today. This startup story ends with Shazam getting acquired by Apple for a reported $400 million in 2018, integrating its powerful music recognition capabilities into the Apple ecosystem. This acquisition underscored Shazam's enduring value and influence in the digital music space, enhancing services like Apple Music and other apps like Spotify and Snapchat, continuing to innovate in music discovery. Today, the app has become a staple for music lovers worldwide.

Watch or listen to the full podcast with Chris Barton at LucidityInsights.com, or find the Lucidity Insights Podcast on Spotify, Youtube, Apple Podcasts, or wherever you get stream your podcasts.

This article was originally published on Lucidity Insights, a partner of Entrepreneur Middle East in developing special reports on the Middle East and Africa's tech and entrepreneurial ecosystems.

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