Wonder why everything isn't speech controlled?

Ever wonder why automated call-centers communicate eerily well, yet your consumer life relies on dozens of keyboards, buttons, and remote controls? Here is the company you should blame.

Last November, I wrote a post titled " Top 10 technology flops ." One of the 10 was speech recognition. Judging by the feedback I got from all over the Web, you'd think I'd said Apple was a flop or Bush was a great president.

What I meant, at the time, was that I was disappointed that we're not rid of all the keyboards, buttons, and remote controls by now. So I did some research and discovered that speech technology is indeed proliferating in some industries: defense, medical, call centers, and rudimentary capability for cell phones, edutainment, and high-end automobiles.

That said, I don't really care that American Airlines can recognize my voice responses on the phone. The only speech application that actually benefits me on a day-to-day basis is on my cell phone, and that's pretty basic stuff.

For the most part, we're still banging away on computer keyboards and drowning in a sea of proprietary consumer electronics devices and remote controls.

Nuance

And now I know why. When it comes to speech technology, one company is holding just about all the cards: Nuance Communications.

Courtesy of dozens of mergers and acquisitions (M&A) over the past 13 years, Nuance now owns much of the speech technology on planet Earth. The company boasts a $3.5 billion market cap on annual sales that will likely top $800 million this fiscal year but, remarkably, has never been profitable. I can see why. Nuance has been so busy acquiring companies it hasn't had a chance to worry about a little thing like profitability.

The company's history is a tribute to M&A gluttony. Let's see if I can get this right. In 1980, Xerox (so many of these stories begin with Xerox) bought inventor Raymond Kurzweil's optical character recognition (OCR) company and ultimately renamed it ScanSoft.

In 1999, a scanner software company called Visioneer bought ScanSoft and adopted the name. That seems to be about when current Nuance Chairman and CEO Paul Ricci entered the picture, and that's when all the fun began.

In late 2001, ScanSoft bought Lernout & Hauspie, a Belgian company that had previously acquired a host of other companies including Berkeley Speech Technologies and Dragon Systems. Amazingly, L&H--the leader in the speech technology field--was bankrupt so ScanSoft got it for a song: $39.5 million.

ScanSoft went on to acquire about a dozen other companies, including some that were themselves made up of acquired companies.

While all this was happening on the East Coast, Nuance spun off from Stanford Research Institute (SRI) in 1994. In 1996, the Menlo Park company deployed its first large-scale, call-center-based commercial speech application.

In September 2005, ScanSoft merged with Nuance and the combined company adopted the Nuance Communications name. Since then, Nuance has gobbled up another dozen companies, the largest of which being Dictaphone for $357 million and eScription for $400 million.

According to my math, the current incarnation of Nuance Communications is actually made up of 42 companies, with a $180 million acquisition of SNAPin Software in the works and an unsolicited offer of $40 million for Zi on the table. Got all that?

The company lists its competitors as AT&T, IBM, and Microsoft. Sounds formidable, but each of these giants competes with Nuance in specific, limited markets. Nuance is far and away the 800-pound gorilla of speech technology.

As for its business strategy, Nuance seems to have done a good job of focusing its limited resources on the largest vertical markets where it can optimize profit margins. The company's primary focus is on helping businesses improve efficiency and productivity while reducing costs.

The fact that the company says little about aggressively driving its technology into the consumer space is telling. That's simply not its business plan, and I can certainly understand why. The consumer electronics market is highly fragmented with thin margins and high support costs. And if Nuance wishes to avoid that, well, there really isn't much competition left to twist its arm.

I'd say Ricci is a shrewd businessman.

Still, the next time you get off the phone with an automated call-center that communicates eerily well, only to fumble around with the myriad of keyboards, buttons, and remote controls in your own life, at least you'll know what name to curse: Nuance Communications.

 

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