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
It was only a few hours before kickoff on Super Bowl Sunday, but Microsoft CEO Steve Ballmer wasn't at home getting ready to watch the Bears take on the Colts.

Instead, the Microsoft chief executive was in his conference room inside Microsoft's building 34, the main executive offices, with a room full of colleagues and executives from speech recognition company Tellme Networks. Ballmer peppered Tellme executives with questions about their business, entering the answers into an Excel spreadsheet he had started from scratch.

Steve Ballmer Steve Ballmer

Three-and-a-half hours later he had built a complete business model, and one thing was clear: an acquisition made a lot of sense. Although both companies had invested plenty in speech recognition, the market was heading in new directions and neither company had all the technology it needed. The deal wouldn't be finalized for another five weeks, but Tellme Networks CEO Mike McCue left the meeting convinced that being part of Microsoft was a better option than trying to take his company public or linking up with another large company, such as Google.

His intuition panned out Wednesday as Microsoft announced it was buying Tellme, with plans to integrate the Mountain View, Calif.-based company into Microsoft's Business Division, the unit that includes Office, Exchange and Microsoft's expansion into the world of business telephony.

Mike McCue Mike McCue

Although there are many areas of Microsoft's business that may benefit from speech recognition--particularly mobile search--it is the Business Division led by its president, Jeff Raikes, that has been the most vocal about the company's need to invest in technologies that bring together the worlds of voice and data.

In many ways, the February 4 meeting helped solidify the realization that Microsoft needed more investment in that area. Ballmer had already come out of a recent annual strategy review convinced that speech recognition is going to be key to many areas the company is headed into. But Microsoft already had quite a bit of its own technology; Ballmer had to be sure Tellme is really what the company needs.

At one point, Ballmer had the dozen executives in the conference room track down one of Tellme's general managers at a Safeway grocery store in Sunnyvale, Calif., where the manager was buying some last-minute items for a Super Bowl party. Ballmer wanted an estimate of the size of the market for the kinds of voice-activated systems that businesses use to handle routine customer inquiries.

The more Ballmer heard, the more animated he became. At one point, the effusive CEO became so animated after a demonstration of Tellme's technology, that he absent-mindedly knocked over a can of sparkling water, dousing McCue and his cell phone.

McCue's phone survived. In fact, the spill actually helped convince McCue, a former Netscape executive, that becoming part of Microsoft was the right way to go.

Related audio
Water spill
Tellme CEO Mike McCue recounts getting doused with a drink by an excited Steve Ballmer.

Instant business model
McCue recalls how Ballmer turned a blank Excel spreadsheet into a complete business model in a few hours' time.

"One of the things that got me very excited was how excited Steve was," McCue told CNET News.com on Wednesday. "It was just one of those great meetings."

Although Microsoft did not disclose how much it is spending to buy Tellme, it is one of its biggest purchases in years. Several media outlets estimated the deal at $800 million, while one Wall Street analyst claimed the purchase price topped $1 billion.

Microsoft's bets on the potential of voice recognition go well beyond Tellme. The company has spent years building its own voice interface into products like Windows and Exchange Server. Speech recognition has also been a longtime priority for Microsoft's research unit. Kai-Fu Lee, the Chinese executive whose departure for Google sparked a multiple-state legal battle, is among those who have focused on voice recognition work at the company.

"We're big believers in speech as the natural interface that is going to open up computing and the potential of computing to literally billions of people," Microsoft's Raikes said Wednesday.

CONTINUED: Speech in mobile search…
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See more CNET content tagged:
Tellme Networks Inc., Steve Ballmer, Super Bowl, speech recognition, Redmond

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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