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Apple Finally Leverages Shazam Tech for Content Discovery

By Evan Niu, CFA – Aug 20, 2019 at 8:30PM

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The Mac maker needs to catch up to Spotify's Discover Weekly.

It's now been nearly a year since Apple (AAPL 3.08%) closed its $400 million acquisition of Shazam, the popular U.K.-based music recognition app. After the news of the deal first broke, it was clear that there were two core ways that Shazam could help support Apple Music: by bolstering Apple's content discovery capabilities while also serving as a referral funnel for subscriber acquisition.

Apple is finally using the start-up's technology for content discovery, a core competitive area where the tech titan lags rival Spotify (SPOT 3.13%).

Apple Music on multiple Apple devices

Image source: Apple.

Trying to catch up in content discovery

Apple Music recently launched a new Shazam Discovery playlist, which Apple says "compiles up-and-coming songs from breaking artists." The playlist will algorithmically update on a weekly basis, not unlike Spotify's popular Discover Weekly feature. The artists that are featured in Shazam Discovery are enjoying significant momentum on Shazam's charts, although the company says that songs can come from "different points in their individual lifecycle."

However, there is one critical difference between Shazam Discovery and Discover Weekly: Spotify's offering is personalized on the individual level based on user preferences and listening history, while Shazam Discovery is little more than a global ranking of what's popular each week. Shazam Discovery is not tailored each user, a daunting task considering Spotify's sheer scale. The Swedish paid music streaming leader now has 108 million premium subscribers, and Discover Weekly is one of Spotify's most popular content discovery features. It also helps strengthen customer retention.

It's worth noting that The Information recently reported that the two competitors are in talks to integrate Spotify with Apple's Siri, allowing users to control Spotify (including playing Discover Weekly) with the voice-controlled virtual assistant. Integrating with virtual assistants for seamless use is extremely important for the added convenience. Spotify has argued that Apple is engaged in anticompetitive practices by favoring its own services while limiting functionality -- such as Siri integration -- for third-party offerings.

The audio-streaming wars are heating up

Spotify and Apple Music remain locked in a race in paid music streaming. Apple Music recently hit 60 million paid subscribers, roughly the same proportion that has held up historically compared to Spotify. Precise comparisons aren't feasible because the Mac maker discloses Apple Music subscribers irregularly, whereas Spotify provides shareholders with quarterly updates.

Chart comparing paid subscribers for Spotify and Apple Music

Data source: Apple and Spotify. Chart by author.

While Apple Music tries to beef up content discovery, Spotify is working to chip into Apple's dominant position in podcasts. Spotify may even add Stories, the media format that has overtaken social media platforms, to playlists, according to app researcher Jane Manchun Wong, who discovered code for it in the Spotify Android app.

Much like the video-streaming wars, the audio-streaming wars continue to heat up, which is music to investors' and consumers' ears alike.

Evan Niu, CFA owns shares of Apple and Spotify Technology. The Motley Fool owns shares of and recommends Apple and Spotify Technology. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.

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