How song-identifying app Shazam uses augmented reality to make money

Shazam was one of the first apps to become a verb. Long before you could Uber somewhere or Airbnb a place, you could Shazam a song to find out the artist or the name of the tune.

And now the ubiquitous app has a brand-new augmented reality platform, marking just the latest in a wave of new ventures that also includes a partnership with Snapchat (SNAP).

Shazam announced the new platform on Monday, which aims to make marketing materials for consumer brands come to life, just by using the app to scan unique "Shazam Codes."

One of its launch partners is Beam Suntory, the world's third largest premium spirits company.  Those customers will, for example, be able to use the Shazam app to play an AR memory game to find discounted spirits from Beam Suntory. Some of the other offerings include 3D animations, product visualizations, mini-games and 360-degree videos.

Shazam originally began as a way to download MP3s, later evolving from a music identification app to a service that lets you identify and engage with just about anything. In 2015, the company launched "visual Shazam," a feature that lets consumers use a camera to identify any product you can imagine — including music, movies, advertising and TV shows.

"We went through a business model transformation to make advertising our largest source of revenue and our biggest business," Shazam CEO Rich Riley told Yahoo Finance.

"This augmented reality launch is all in support of our advertising business. Last year, we worked really hard to grow our advertising business — it's now our largest revenue stream and that drove us to profitability with plenty of cash and a lot of flexibility as a company."

This flexibility has allowed Shazam to experiment across a variety of channels, including its AR platform. Shazam will also be a part of its own TV show this summer — executive producers Mark Burnett and J eff Apploff have developed "Beat Shazam," a show hosted by Jamie Foxx on Fox (FOXA).

SHAZAMMING ON SNAPCHAT

But perhaps, its most noteworthy and consumer-facing partnership is with Snapchat.

In December, Shazam became Snapchat's only in-app feature, enabling users to identify a song without ever leaving the ephemeral messaging app. In the same way that Snapchat can identify your location and you can share your geotag, with a single tap of the Snapchat camera screen, Shazam identifies what song is playing, and you can share the info with your friends on Snapchat.

The in-app Shazam feature has become another way the legacy company is trying to reach a younger audience who may otherwise be inclined to ask Siri (AAPL) or Amazon Alexa (AMZN) to identify songs instead.

"Users love it. It's really exceeding all of our expectations, and we think there's a lot more that we can do," Riley said.

Riley said it was a "really organic conversation" with Snapchat and it was a natural fit. "It was one of the easier partnerships that we've ever been a part of, incredibly successful so far," he said.

Citing his two teenage children who spend a lot of their time in Snapchat, he emphasized that Snapchat is the gateway to young consumers.

"If you want to get to them whether it's a dad sending them a message or an app trying to deliver a service, getting into Snapchat is a really good way to get there. It helps us with a certain demographic that we have some exposure to but we'd love to get more," he said.

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THE NEW WAVE FOR A LATE-STAGE STARTUP

Having been around since 1999, Shazam has been forced to evolve beyond a simple music discovery app. But, with its advertising revenue, the company has been able to tap into new ways to expand its core vision — to help consumers discover and dive deeper into any sort of entertainment that intrigues them.

Though Riley has said he would love an IPO to be in Shazam's future, he acknowledged that it may not be a reality in the foreseeable future.

"You always want to build the standalone company that you can and the company that would be a great IPO candidate. We have a strong brand, a great business model, a great team, huge user base, and so we would love that as an option, certainly, while at the same time being realistic and realizing that not that many companies get to go public," he said.

Shazam's latest round of funding values the company at $1 billion and as Riley noted, "achieving profitability is very rare for a [late-stage] company like ours and gives us a lot of choices," he said. For comparison's sake, publicly traded 11-year-old Twitter (TWTR) has never turned a profit.

Regarding the possibility of being acquired, Riley told Yahoo Finance that the company is keeping its options open, expressing that he has talked with existing partners as well as potential partners.

Given the massive transformation of the music industry, particularly the domination of streaming services like Spotify, Shazam has been adept at innovating and reacting in such a rapidly evolving tech industry. But, perhaps, now may be the time — while it has the momentum — for  Shazam to orchestrate a successful exit strategy.

Melody Hahm is a writer at Yahoo Finance, covering entrepreneurship, technology and real estate. Follow her on Twitter @melodyhahm.

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