Shazam represents an “exemplar” multisided business model in the music sector, where content is free to users and paid for by advertisers. Shazam is a free app with which smartphone users can identify music and TV programs by opening the app when the song or TV show is playing. The app portrays advertisements, and because the advertisers and app users are kept separate – advertising companies do not, nor could not easily themselves, target individual users – this is an example of a multisided business model. In a product business model that operates alongside the multisided business model, Shazam also offers Shazam Encore, a premium version of the app, at a cost of £6.99. It is an ad-free environment and includes integration with Spotify and Rdio. Shazam Encore users can also enjoy Full Track playback with Spotify. This write-up will focus on the free Shazam app.
Shazam Entertainment Limited was founded in 1999 by Chris Barton, Philip Inghelbrecht, Avery Wang, and Dhiraj Mukherjee. In 2014, Shazam had more than 100 million monthly active users and had been used on more than 500 million mobile devices. Shazam announced its technology has been used to identify 15 billion songs.
Shazam customers are the individuals who are curious to know more information about the songs they are listening to or the TV shows they are watching. They must have an Internet connection to access to Shazam database. Shazam launched in London and is currently available in 13 different languages. Shazam customers span wide demographic ranges – young to old, wealthy to lower-income, men and women, etc.
Learn more about the Multi-sided Business Model
You identify two or more different customer groups; and after interacting with each you design and deliver your goods or services in a manner that connects the two parties.
Engagement — Value Creation Proposition
Shazam engages differently with its users and advertisers. Shazam offers users free access to the same media database and offers advertisers access to specific user groups based on user characteristics and search histories.
For Users: Shazam offers users free music information by analyzing the captured sound and seeking a match based on an acoustic fingerprint in its database. Users are then given the opportunity to purchase the song.
Advertisers: Shazam operates primarily through its mobile app, and advertising is an inherent element of its app platform. The simple user interface design makes Shazam attractive to advertisers. The company has been a part of 450 ad campaigns.
Recently, Shazam launched a new sales platform Resonate to help TV networks and advertisers connect with consumers on their smartphones and tablets. Networks and brands can integrate the app within TV shows, delivering purchasable content to users.
Delivery — Value Chain
Shazam works by analyzing the captured sound and seeking a match based on an “acoustic fingerprint” in a database of more than 11 million songs and TV shows. The user taps a button in the app while the song or TV show plays, and after 10 seconds – if the song or TV show is in Shazam’s database – the user is given the song/show title and other information, and the opportunity to purchase it online. The app can identify only prerecorded music and TV shows, but these can be recognized from a variety of broadcast sources such as radio, TV, restaurants and clubs (provided the background noise does not interfere with the “acoustic fingerprint.” Once the song or show is recognized, Shazam incorporates links to services such as iTunes, YouTube, Spotify and Zune, where users can purchase the media.
Shazam partners with various music label companies such as Entertainment UK, whom they approached to digitise their music catalogue of 1.5 million songs in return for permission to create a proprietary database.
Monetisation — Value Capture
1 Referral fees: Shazam makes money by referring users to iTunes where they can buy songs, or to Spotify where they can buy a subscription. Shazam receives a portion of each purchase for the referral. Shazam estimates that digital sales generate $300 million annually. Of the 17 million tags per day, 5 to 10 percent result in a purchase, the majority of which are music, while TV shows, films and apps continue to grow within Shazam’s portfolio. Partners like Apple, which has integrated Shazam’s service into Siri for iOS 8.
2 Advertising: Shazam operates through its mobile app, and advertising is an inherent element of its app platform. The company has been a part of 450 ad campaigns, which cost between $75,000 and $200,000 and runs for a couple of months. On its own, advertising generates a multi-million dollar business
Disclaimer — Written by Jingfei Ma and edited by James Knuckles under the direction of Prof Charles Baden-Fuller, Cass Business School. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2016 Published 21 April 2016