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Nuance Extends into Hosting Space with BeVocal Acquisition

Thu, 02/22/2007 - 22:35 — Avery

Today, on the second day of the SpeechTek conference, Nuance announced its acquisition of BeVocal (see press release here).

Though some see this acquisition as a big thumbs up from the speech recognition juggernaut, I see another finger being raised to its existing hosting partners.

BeVocal is (was) an independent hosted VoiceXML platform. Though BeVocal allows customers to design and host voice applications on their own webservers, the primary model is for BeVocal to act as a full service studio - designing, developing, hosting and maintaining voice applications within their own network. This model closely follows the business models of Tellme, FirstData, West and the other full service hosting providers.

Nuance, or most importantly the acquisition of Nuance, SpeechWorks, L&H, LocusDialog, Philips Speech Processing, Dictaphone and other voice technology firms by ScanSoft (who then renamed themselves as Nuance), is the clear leader in the speech recognition and speaker verification space, owning the clear majority of the North American market. Nuance technology provides the speech recognition technology for practically 100% of the North American hosted voice portal platforms. Now that Nuance also owns a hosting platform, it will compete with the hosted channel that it has held a virtual stranglehold on.

This isn't the first time in Nuance's history that it has made a predatory move against its channel partners. Pre-Acquisition, Nuance, which then held close to 50% of the North American market, released its NVP platform. NVP was an enterprise VoiceXML platform, direct competition to the channel partners that represented the majority of its sales: Avaya, Nortel, IBM, Genesys, Intervoice and the rest of the vendors in the space. The result of this move was dramatic, with most of their enterprise sales channel refocusing their speech recognition strategy on ScanSoft. After the acquisition by ScanSoft, Nuance "abandoned" new sales of NVP but continued development in order to support the existing NVP customer base.  In front of the combined Nuance and ScanSoft user group, the new Nuance promised to stay partner friendly and focus on the development of speech recognition, text-to-speech, voice application components, development tools and analytics - the sectors that were not significant revenue generators for Nuance's major partners.

So, today, it is another case of the same message but a new target. This time, Nuance is taking aim at its hosted and carrier partners. 

Nuance is in a unique position - because it is the preferred partner of most platform and hosting vendors, Nuance is now considered the de rigeur speech recognition engine. Due to this, the majority of new speech recognition RFPs that go to the platform/hosting vendors also get submitted to Nuance. That was the concern from the platform vendors regarding NVP - as Nuance would be able to participate both indirectly AND directly on these bids - potentially undercutting their own partners. Now, the same situation arises in the hosting sector.

Do not be surprised if this is the first move towards the reintroduction of NVP into the platform space as well. 

There are a number of valid alternatives in the market to Nuance technologies. Voxeo took the lead by developing their own ASR and TTS technologies and offering them to its hosted and premises partners. Telisma and Loquendo, strong contenders in Europe have the technology to start to move into the North American market as well.

The one company who is in the best place to stop what is becoming a tyrannical approach to the voice market is IBM. Not only does IBM have the technology and tools to compete with Nuance on equal footing, it is the sole contender in the space who has the marketing budget and mindshare to lodge a significant incursion into Nuance's territory.

Though the "new" Nuance promised to do more to change its image than simply changing its logo to the color of money, it seems to have fallen back on bad habits. Will 2007 become the year of Big Blue versus the Less-Than-Jolly Green Giant? 

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Comments

Fri, 02/23/2007 - 15:44 — JohnH

When will the Speech "Avis" finally step up?

I've got a marketing perspective on this that comes from a very different angle, so I'll post separately. But I agree- once again, Nuance is competing with its partners. Why? Because they can. For now. They compete for application services business, voice platform business, and now hosted services business. When I was at VoiceGenie, a large prospect who had already chosen Nuance ASR was leaning towards a VoiceGenie platform. Nuance GAVE AWAY NVP, killing the VoiceGenie sale and locking the customer into one ASR engine. Guess who's paying higher-than-market prices for their ASR today? Guess how much Nuance VoiceGenie resold the next couple of years. But that was when SpeechWorks/Scansoft was an alternative. In every market, there's always room for a strong number two. Nuance is creating every opportunity for someone to step up and become the "we try harder Avis" of the speech market, but I haven't seen anyone actually try harder for the spot. IBM and others have the technology to be competitive, but I haven't seen any aggressive market tactics to signal they want it. They all seem to be just plugging along, doing the same things and hoping they'll win a few more deals this year than last. Too bad for them, and too bad for the market, huh?
Mon, 03/05/2007 - 03:04 — daniel

Datamonitor’s take on Nuance’s acquisition of BeVocal

Below is what the Voice Business Team at Datamonitor wrote in regards to the acquisition...

The acquisition of BeVocal represents an interesting move by the M&A-crazed Nuance. The $140m price tag is hefty and the $60m potential on top of that is indicative of Nuance’s strong desire and urgency to scale up its operations in the wireless carrier space across their product suite (customer care, mobile search, embedded, etc.). Investors will surely have to see Nuance extract value from this acquisition over a relatively short time span. In January of 2007, Nuance stated in a press release that they had set themselves a goal of making mobile search as pervasive as traditional 411, desktop search, and email by the end of the decade. Evidently, the BeVocal acquisition demonstrates that Nuance is willing to pay a high premium in order to gain more access to wireless providers, and building those relationships is key to expanding this market. The implication here is that Nuance has recognized speech as an enabling technology, which is deployed when touchpad interfaces are not feasible, and has isolated the mobile consumer, who derives some value from having his/her eyes and hands free, as the most promising area for growth. It would be consistent with this conclusion for Nuance to pursue the lucrative directory assistance market as they endeavor to establish themselves as the default option for wireless providers.

The first question that comes to mind is – does this endanger their partners? While Nuance partners have noticed more aggressive practices employed by Nuance (especially in professional services) we cannot say with certainty that this acquisition reflects any hostile intentions towards partners outside of those actively pursuing sales in the wireless carrier space (both service provider and enterprise). It supports its new initiative in mobile services which was launched in the latter part of 2006 and provides greater flexibility for wireless carrier customers in terms of deployment options. Datamonitor expects partners to express some discomfort, as it becomes more possible for Nuance to compete with them directly. There will be concern about whether Nuance intends to expand BeVocal’s foothold into other verticals in the long term. However, it is unlikely that relationships will be seriously affected in the near term unless Nuance makes strategic moves which explicitly threaten partner revenue.

What did Nuance purchase with the acquisition of BeVocal?
-Hosting capabilities serviced through two maybe three data centers.
-BeVocal café (developer forum) and clients
-Greater expertise in the communications markets
-Additional application resources.

Some areas of concern:

Does this represent a larger move into the communications vertical market by Nuance?
-Only time will tell. Although the majority of BeVocal’s customers are wireless carriers it also has other customers in the communications space (i.e. major VoIP provider). The communications market is undergoing heavy consolidation and change as telco providers, wireless carriers, cable providers and even internet companies compete to control multiple mediums (phone, TV, internet). Nuance has clearly said that it will focus on the wireless carrier space but dividing lines may disappear with fixed-mobile convergence and unified communications.

What is the initial market reaction to this announcement?
-There is some concern from the vendors/partner community, but most share a neutral stance.

Will they go international?
-Probably!

What will happen to NVP and BeVocal’s IVR platform?
-Nuance has stated product integration of the two platforms is still under discussion. Their spokesperson made no explicit mention of reintroducing an IVR platform to the market. We suggest that you get Nuance’s official take on this. We also expect that wireless carriers may migrate to a hybrid or even a premise-based model in the future.