March 15, 2007 4:00 AM PDT

Behind Redmond's Tellme deal

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Sources say Microsoft near deal to buy Tellme

March 12, 2007

The future of talking computers

October 13, 2003

(continued from previous page)

Mobile search is an area in which speech seems like it might be particularly useful because the lack of an easy way to enter information has been a barrier to handling search tasks on a phone.

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Microsoft gets a voice--literally
Context surrounding the biggest acquisition Microsoft has pulled off in more than a few years--its purchase of Tellme Networks.

"With little, little screens (and) bad keypads, speech is just a natural," said Steve Chambers, president of the speech division at Nuance Communications, a company that is both a rival and partner to Microsoft and Tellme in the speech business. Last month, Nuance announced it was buying BeVocal, a company that helps mobile carriers handle customer care.

Tellme recently started testing several mobile products. With one service, for example, people can send a text message to find the nearest Starbucks and receive a text message with a link to a map to get there.

Raikes also pointed to the benefits that speech technology can provide in the world of mobile search.

"The research that we looked at...suggests that more than 35 percent of mobile search users would be more likely to use search if voice were added," Raikes said. And that's just the beginning.

"We think of that as extending even beyond the mobile environment: how you interact with your television, how you interact with your automobile, how you interact with other computing devices," Raikes added.

"It's like a national holiday, but we were all holed up in Microsoft conference rooms.
--Mike McCue, CEO, Tellme

For his part, McCue had also been envisioning a bigger role for speech and knew it would be difficult for his company to tackle that on its own, even though it was profitable.

"If you look at any IPO scenario, there is no way that it can compare to the kind of opportunity we have to try and take our technology to billions of consumers across any sort of device globally," McCue said. "An IPO is just one step along the way. It takes years and years to really gain critical mass."

The pot of money there for the taking could be enormous. The market for voice-enabled systems at large businesses alone is probably $5 billion, McCue said, with even larger amounts to be made from consumer services such as directory assistance and local search.

McCue had already brought in bankers from Morgan Stanley and Goldman Sachs to help sort through the possibilities. The company had wide-ranging talks with other companies and also explored the possibility of using the proceeds of a stock offering to fuel an acquisition binge of its own.

The day before the Super Bowl, executives for Microsoft and Tellme including Ballmer and McCue, spent most of the day talking. But Ballmer, clearly looking for more details, called McCue at 11:30 a.m. on Super Bowl Sunday asking for another go around. As quick as they could, McCue and his team left the posh Hotel 1000 in downtown Seattle, ran to their Ford rental car and sped across the Lake Washington bridge toward Redmond, Wash.

Though certainly worth the effort, McCue said it was a bit odd to spend the biggest football day of the year in business meetings. "It's like a national holiday, but we were all holed up in Microsoft conference rooms," he recalled.

By the time the executives left the conference room that evening, they knew they were on to something.

"We had already been talking to Microsoft across multiple areas, but this is really when it started to really come together," McCue said. "It became clear this was a serious opportunity for both companies. The next few weeks were largely spent making sure those intuitions--and the numbers on Ballmer's spreadsheet--checked out.

"That was done at a very, very athletic pace," McCue said. Of course, that's coming from a guy who missed the Super Bowl.

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18 comments

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Ballmer is going to kill Microsoft
Sounds like this plan is about as well-conceived as the Zune.
Posted by extinctone (214 comments )
Reply Link Flag
Lols Ballmer has bipolar or something... but:
The zune was just a (failed) retaliation at apple. This is just a rational, strategic business decision.
Posted by godam_registration (113 comments )
Link Flag
Someone has to kill MS
If Google doesn't do it, then it might has well be Ballmer.

But someone has to.
Posted by t8 (3716 comments )
Link Flag
Let 'im.
What? MSFT, IBM, nor any other tech company deserves to
survive dumb mistakes.

Apple only survived their near self-implosion in the '90s because
they were lucky enough to have caught MSFT with its hand in
Apple's code cookie jar. IBM only survived the 'partnership'
hosing-over they got from MSFT because they were smart
enough to catch it before it began to eat them alive, and had
other markets to help sustain them until they recovered.

Maybe now it's MSFT's turn to bend over because of their CEO's
dumb mistakes... not sure if they'll survive it long-term though.

/P
Posted by Penguinisto (5042 comments )
Link Flag
Microsoft will never die
And what the hell do you know about how this plan was conceived, were you in the meeting?
Posted by Fil0403 (1303 comments )
Link Flag
Sounds Typical
Pulling people into a business meeting on a Sunday, much less
Superbowl Sunday (like I care), shows the complete disregard
Microsoft has for people and their personal lives. Granted, it's a two
way street but what the heck are you supposed to say when Steve
Balmer calls and says he wants it as quick as he can? The more
courteous thing would be for Steve to say, hey can we meet first
thing Monday morning? Did that extra day really make such a big
difference?
Posted by rhett121 (73 comments )
Reply Link Flag
800 million reasons to forgive
Hey, for 800 million, I could find it in my heart to forgive the call...since I'm such a nice guy. :)
Posted by smarty_pantz (15 comments )
Link Flag
Crackberry culture
It's as if everybody wants to be on the job at all times, 24 hours a day, 7 days a week, and wants everyone else to do the same. It's actually pretty sad, and scary if it becomes a compulsory term of employment.
Posted by 60AmpRelay (17 comments )
Link Flag
tellme deal
Great let's see how long it takes to implement & how many times
that the project takes on a different name when MS can't deliver.
Posted by scweezil (171 comments )
Reply Link Flag
RE: tellme deal
Who cares how long it takes to implement and how many times the project takes on a different name when it comes from a company who has never lost a single market-war on any field?
Posted by Fil0403 (1303 comments )
Link Flag
Sizzles in the press...
So it comes down to this: If there were a $5B speech market and a mobile search market that's God knows how big waiting just around the corner, don't you think we'd be reading about it in Tellme's S1? (See the annual "Tellme's going public this year stories) No, investors must be applying a horrid discount to that potential revenue stream. Tellme managed to find an exit that would keep its investors whole when going public didn't look like it would achieve that. Tellme executives deserve a lot of credit for perfect execution on a Hail Mary exit.

As for Microsoft, Tellme did build some great speech interfaces. But much of that team left Tellme months ago. Mobile search is red hot in the press, but not so hot in terms of actual revenue for Tellme and others staking their claim in that play. (BTW, "not so hot" here actually means "zero") If the commercial success of 555-TELL is any indicator of the looming mobile search market, well, that's not too promising. 555-TELL was a really cool application, but such a commercial flop that Tellme changed its business model.

There is one really good reason for Microsoft to buy Tellme, but I haven't seen it reported anywhere and I'm not even convinced MSFT has figured it out. If somebody connects the dots, I'll confirm what I'm thinking...otherwise I'll make you wait until next season to see how that cliffhanger plays out.
Posted by 73814 (2 comments )
Reply Link Flag
Here's the value
As promised: I think these guys got it right: <a class="jive-link-external" href="http://news.zdnet.co.uk/software/0,1000000121,39286430,00.htm" target="_newWindow">http://news.zdnet.co.uk/software/0,1000000121,39286430,00.htm</a>
Posted by 73814 (2 comments )
Link Flag
 

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