How too-early startup Shazam survived a decade

@CNNMoneyTech March 6, 2012: 7:46 AM ET

NEW YORK (CNNMoney) -- Shazam's technology seems like magic: Whip out your mobile phone, hold it up while music is playing, and in a couple of taps the software will 'listen' to the music and tell you the name of the song and artist.

It's a perfect app for the smartphone era. Here's the catch: Shazam launched in 2002, four years before Apple's (AAPL, Fortune 500) iPhone invented the app economy.

"Shazam is a great example of a company maybe ahead of its time," says Shazam CEO Andrew Fisher.

That can be deadly for a startup. The industry is littered with trailblazers that emerged before the marketplace was ready for them. As just one example, there's Dodgeball, an early location-sharing service that Google (GOOG, Fortune 500) acquired in 2005 and later discontinued. It wasn't until years later, when Dodgeball's founders created Foursquare, that location check-in services caught on.

Unlike most companies that pioneer a concept before users adapt, Shazam survived. A decade ago, its U.K.-only service relied on text messaging to send back song identifications. The company stayed small and lean for its first few years -- then took off when smartphones hit the scene.

"It takes longer than we'd all like it to take to change consumer behaviors, particularly at scale when you're talking hundreds of millions of people," Fisher says. "You need to preserve the funding that you're able to generate."

Shazam's long game paid off. It has 180 million users worldwide, almost half of them acquired within the past seven months, and a staff of 150 in offices in London, Palo Alto, New York and Seoul. The company's revenue stream draws heavily on users purchasing iTunes songs that they've discovered using either Shazam's free app or its $5.99 premium version.

Now Shazam is preparing for its next pivot: from music to television.

"Broadcasters today have a real challenge," Fisher says. "They want to drive real-time check-in to shows, meaning they don't want people to DVR and fast forward through the adverts."

"Shazaming" has already become a verb. It's one the company now hopes to redefine with "Shazamable" ads and programs. When users "tag" on-air content, they can unlock bonus videos, discount offers and other goodies.

Programs like the Grammy Awards are experimenting with the possibilities, but ads are where the money is.

"That's a $300 million market opportunity," Fisher says. "The advertisers realize more people are in the living room -- they've got a cell phone on the coffee table or in close proximity, and if they can incentivize you to Shazam an advert by giving you a voucher or some other incentive, then they can build a relationship with you."

Shazam tested the concept during the Super Bowl. Toyota gave away two free cars to users who "Shazamed" its ads during the show, while other companies offered up gift certificates and free song downloads.

"We wanted to demonstrate to the advertising industry that this was a real proposition," Fisher says.

If the concept takes off, Shazam will be well positioned for its second decade.

"An IPO is a very real option for us now as a company," Fisher says. "When we were smaller it wasn't the case, but today, we've got more predictable revenues that are scaling very quickly." To top of page

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