Apple’s acquisition of Shazam demonstrates the potential for Shazam’s technology to do so much more than identify pop songs playing over a store's speakers.

Apple is paying approximately $400 million for Shazam, with the deal expected to be signed this week, according to TechCrunch. This is considerably lower than Shazam’s $1 billion valuation that it received on its 2015 funding round, but nonetheless a significant transaction for Apple, whose ambitions extend far beyond music recognition.

Shazam logo
The Shazam Entertainment Ltd. logo on a wall at the company's headquarters in London. Bloomberg News

Backtracking on beacons
Apple got in early on the craze to develop Bluetooth-based beacons to communicate with shoppers' smartphones as they wander the aisles of department stores, but its iBeacon standard is hardly a household name. But the same effect can be had with audio signals, and Shazam has already demonstrated an application for this technology in commerce and payments.

In fact, while Shazam has a steady revenue stream from music referrals for the likes of Apple, Spotify and Google Play, since 2011 the company has expanded its capabilities into a range of alternative revenue streams such as allowing users to “Shazam” TV programs and commercials for information, offers and promotions.

Shazam has also expanded into visual recognition of objects, allowing another dimension of connecting the physical world to the digital, such as Nike Inc. making the icon of a jumping basketball player on its recent line of Nike Jordan shoes recognizable by Shazam so users scanning the image through the app would be able to view other Nike offerings.

An earlier concept, championed by shopkick, communicates with a phone's mic instead of a short-range Bluetooth signal.

Shopkick on steroids
Shopkick launched in 2009 as a way to incentivize foot traffic to participating retailers. The value proposition was that store visits and activities such as walking into stores, scanning items, making in-app or in-store purchases and submitting receipts would be rewarded with “kicks” — loyalty points that could be collected and redeemed for mobile gift cards. Shopkick detected these visits by listening for an ultrasonic audio signal that was unique to each store and could be detected by the shopkick app but not by human ears.

Unlike beacons, this technology didn't require special hardware to be placed throughout the store. In 2012, shopkick integrated with Mood Media Corp. — owner of Muzak — to embed its ultrasonic signal into the music piped through the speakers at Macy's and other stores. Mood Media can manage this remotely, meaning no additional hardware has to be set up at the store level.

Shopkick soon jumped on the beacon bandwagon, combining its audio-based rewards system with Bluetooth devices. The company has been relatively successful, acquiring high-profile retail partners including Best Buy, American Eagle Outfitters, Carter’s and 1800Flowers.com as well as brands such as Dole, Aleve, Coffee-Mate and Kellogg’s. As of April 2017, Shopkick had driven over 200 million store visits, over 270 million product scans in aisle, and over $2.5 billion in total sales from brand and retail partners.

However, there are some fundamental handicaps to shopkick's capabilities that Apple and Shazam could improve upon, such as the need for a dedicated app to be open and listening for the ultrasonic signal.

Google has already demonstrated with its Pixel 2 phones that a device can constantly listen for and identify songs and display results without being prompted by the user. This feature, called Now Playing, even works offline.

Naturally, if Apple wants to put similar technology in its iPhones, it won't be licensing it from Google. But Shazam's technology could fill that purpose, first by performing a similar stunt to Google's song-identifying trick, but also by listening for other signals tied to payments and commerce. Notably, Shazam can already be embedded directly into Apple’s Siri voice assistant, adding extra functionality.

“The arc of development in this space is around adding intelligence and relevance to the dialog to deepen the relationship and increase the ‘stickiness’ of their offering.” said Thad Peterson, senior analyst, Aite Group. “Shazam is a sophisticated database that can do a lot more than find music.”

Shazam Pay?
Given the potential for Shazam’s technology to ‘hyperlink’ the physical world, the applications are almost endless.

Connecting the dots, Shazam enables consumers to scan audio or visual content such as TV, radio, billboards and even the clothes of someone you see on the street with the ability to purchase via a direct link to Apple Pay. With more and more voice-centric technology coming to the forefront, the means to embed transactions into the DNA of conversations and calls to action is highly compelling, particularly given Apple’s aspirations in the fields of automotive and AI.

If Shazam's technology is baked into the OS, it could fundamentally change the ways retailers interact with shoppers. In the example of an Apple store, a customer with an outdated iPhone could see an on-screen prompt to upgrade to a newer device or to communicate with a sales associate. In other stores, the iPhone could bring up loyalty cards stored in Apple's Wallet app, or aid in authentication by verifying the shopper's location during a purchase.

It could even solve the dreaded top-of-wallet conundrum for Apple Pay by setting a retailer's card as the default when it detects a certain audio signal within the store or at the point of sale. Apple Pay never really demonstrated a compelling use case to convince shoppers to use a mobile wallet instead of cash and cards — could a 'Shazam Pay' be that killer app?

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Nick Holland

Nick Holland

Nick Holland is a senior analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.