Shazam comes out of the shadows

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NEW YORK (Fortune) -- Have you ever been out with friends at a bar and heard one of those seventies songs like "Play That Funky Music, White Boy" by a one-hit band whose name none of you could recall?

If you are a wireless customer of AT&T (T, Fortune 500) or Verizon (VZ, Fortune 500), you could whip out your phone and find the answer (it's Wild Cherry) using their applications that identify songs based on an audio fingerprinting technology.

You probably didn't know Shazam, the company that created and licenses this service to these big wireless carriers. Shazam's application has been used by 20 million customers in 60 countries. But until recently, it was virtually unknown in the United States.

That's because Shazam provided a "white label" service to these companies. The company's name didn't appear when customers used AT&T's Music ID or Verizon Song ID services.

Now everything is changing for Shazam in the United States. It can thank Apple (AAPL, Fortune 500) CEO Steve Jobs for that. In July, the Cupertino, Calif., company made Shazam's search application available as a free download for the iPhone from the Apple App Store.

As late September, 1.5 million iPhone users had downloaded Shazam's own branded discovery software. That makes Shazam the most popular iPhone music application after Pandora, the Internet radio service.

"The iPhone has generated much awareness [for Shazam]," says Paolo Pescatore, a mobile content industry analyst at CCS Insight.

Andrew Fisher, Shazam's CEO, couldn't agree more. "The iPhone has been very helpful," he says. (Apple declined to comment.)

Now the challenge for the privately-held Shazam is to translate its newfound notoriety into profits. The seven-year-old company's prior deals in the United States were low-profile. But they came with dedicated revenue streams.

AT&T users pay $3.99 a month for Music ID. "It's a top ten application for us, and one of our top five music applications," say Rob Hyatt, executive director of Premium Content for AT&T's wireless operations

Verizon customers get Song ID when they sign up for the wireless company's $15-a-month V Cast mobile entertainment service.

But iPhone users don't pay a dime for Shazam. The company has no plans to charge them for the discovery service either. Instead, it will roll what it refers to as a "premium, ad-supported application" by the end of the year.

Shazam won't go into more details. But Charlotte Patrick, an analyst for Gartner, says advertising makes sense for the company. "There's a five-second delay every time you search for a song," she says. "That could be used for an ad."

The company doesn't want to charge iPhone customers because it wants to build a much larger customer base here. In England, Shazam is so popular that the music industry uses its weekly chart of Top 40 user-identified songs to predict future hits. "It's an important tool," says Paul Guimaraes, press manager at EMI's Virgin Records in London. "It's an indicator of what people are really listening to."

Ultimately, Shazam wants to connect its customers and create a vast social network of music lovers. "We are very much focused on the social aspect of music," he says. "Look at MySpace. They started with music. Music is a really social currency, both in terms of you or I wanting to discover music before our friends and the fact that people also meet each other though music."

Fisher predicts Shazam users will create diaries on their phones of where they are and who they are with when they discover songs. It's also working on technology that would enable users to send songs immediately to their friends once they have identified them.

"That's the final piece in the puzzle for us," Fisher says.