Fourteen years is several lifetimes in digital music, but for the first six years of its existence, Shazam was teetering on the brink of total collapse – and it was only the launch of Apple’s App Store for iPhone in 2008 that saved it.
Shazam co-founder Chris Barton told this week’s Slush conference in Helsinki about the company’s history, revealing that it repeatedly came close to extinction in its early days, burning through investment capital, laying off staff and killing one product due to licensing terms.
Barton also talked about Shazam’s decision to sell off some of its patents to keep the business going until the dawn of the modern apps era arrived. He described the company’s history as both “a story about a success that took a very long time” and “a success that took years of almost going out of business”.
That included early pessimism from investors, technologists and audio experts alike around the prospects for a service that would identify music playing in the real world, accessed through a mobile phone.
“People told us that we were not going to be able to build it, that the technology wasn’t going to work and we weren’t going to raise funds,” said Barton. “They said no one would want to use it and it would be a novelty. We had overcome all those obstacles and built a commercially viable service and we were ready to launch.”
Investors, bruised by the first dotcom crash around the turn of the century, took some convincing that a consumer-facing mobile product was ever going to have a chance.
“The world was falling apart at the seams. VCs were not investing. They were definitely staying away from consumer businesses. We took it to VCs and then more VCs and then more VCs and then more VCs,” said Barton of the period in 2000 and 2001 when Shazam was seeking investment.
“There were over 100 venture capital firms that we pitched to. Pretty much they all said, ‘No. Sorry. Too risky.’ Luckily we got three to step up and invest and raised a $7.5m round using only a demo on a PC. We had no customers and not even a proven service that could work. Times were pretty different back then.”
Barton and his team, however, were quixotically convinced that Shazam was going to be a roaring success straight out of the gates. They felt it was going to add a whole new experience to mobile – getting people to dial a four-digit shortcode to identify music – that would make it irresistible.
“At the time we created Shazam, the only thing you could do with phones was make a phone call or send a text message,” he says of the early 2000s. “There was one other thing that was hip and cool – downloading a monophonic ringtone. We were going to bring this wow factor. We were going to make this magical experience where you could just hold your phone up and it would tell you the name of a song […] Everyone with a phone could use it so, of course, we were going to get millions of users.”
What Shazam hadn’t banked on was just how long it was going to take consumers to adapt their behaviour, though.
“Instead of getting tens of millions of users or even millions of users or hundreds of thousands of users, we got a few thousand users,” said Barton of Shazam’s underwhelming debut. “Even though everyone we showed the demo to said it was like magic, it was amazing and that they would use it all the time. The reality was it didn’t spread like wildfire.”
He added: “It was a brand new behaviour for people. There were no apps. People didn’t use phones for anything apart from voice calls and text messages – or occasionally downloading ringtones. Changing that behaviour to get people to hold up their phone, dial a number, get a song to their phone – it was hard to get the message out.”
Barton talked about the low points for Shazam when it had to lay off staff, but stressed that the cuts were unavoidable to keep the company going. He also said that Shazam misjudged the impact that marketing would have on its business.
“We even hired people to walk into bars and demo Shazam to random people there,” he said of Shazam’s sometimes clutching-at-straws approach. “The ROI was just not there so we couldn’t afford to keep spending money on marketing. We thought it was probably all over.”
Barton also claimed that issues around licensing forced Shazam to scrap some features within its service, at a time when it was still figuring out what kind of relationship it would have with the music industry.
“We had a feature called Songmail, which was a sharing, viral feature that we thought could help drive the growth of Shazam,” he said. “It required music licences. For anyone who has ever dealt with record companies, music licences usually come along with upfront payments and guarantees. It was something that was unaffordable for a startup. So we couldn’t launch that feature.”
In this pre-App-Store period, Shazam was struggling to attract new investors because it was not showing growth or evidence of a viable business model. Its original investors decided to put more money in rather than pull the plug, although they dialled down the amounts they were willing to put in, meaning that for a while, Shazam was operating hand-to-mouth.
“There were many times month to month that we thought we might be a month away from going bankrupt,” said Barton. “That actually lasted from our launch in 2002 until we finally hit a hockey stick of growth in 2008 with the iPhone App Store launch. For a six-year period [before that] we were essentially near death.”
To keep the wolves from the door, Shazam was “forced into a corner” and sold off the B2B business it had built to monitor thousands of radio stations and identify the songs played for rights bodies, as well as selling IP and patents.
“It saved the company. That money that came in the door basically became the new funding for Shazam to help carry us through that period – from 2002, when we launched, to 2008 when the iPhone App Store launched,” Barton said of that roll of the dice.
“Thank God that happened. When the iPhone App Store launched, it changed everything. Now you are not changing the behaviour of someone to get them to identify a song, because people understand that phones are about doing all kinds of things other than making calls and sending text messages.”
A decade and a half on, Shazam has now passed 1bn downloads of its app and says it is drawing in 8m new users a month. Barton also confirmed that the company is finally entering profitability – an announcement it made this summer – which represents a huge economic but also a psychological shift from the tense times in Shazam’s first few years.