With Hard Work Comes Prosperity

For many, the year that just ended might be characterized by one never-ending dark cloud, with the economy, employment, the housing market, General Motors stock, hopes for world peace, and dreams for a sound national healthcare policy all crying out in pained anguish. To the Chinese, 2009—identified in their astrology as the Year of the Ox—might have played out exactly as planned. The ox, characterized by hard work, seemed the appropriate symbol of the year, one in which prosperity only came through fortitude and conscientious effort. 

While the year might not have been as profitable for most as it was for the top executives at the financial firms who lined their pockets with government bailout money earlier in the year, the speech industry’s hard work in 2009 paid off. In fact, many would say it was a pretty darn good year overall for speech. For the most part, speech companies remained profitable, though profits were not as high as they had been prior to the recession.

Interactive Intelligence, a provider of IP-based business communications solutions, for example, saw growth slow to 10 percent in 2009. “We were doing about 32 percent [growth] prior to 2009, and we knew it wouldn’t hold in this economy,” says Christine Holley, director of market communications at Interactive Intelligence. “We were still profitable and didn’t pull back on R&D and product line development. We wanted to be positioned for the recovery when it happens.”

Likewise, Adeptra, a provider of automated virtual agent technologies, saw smaller profits in 2009, but still managed to remain in the black. “We continued to grow through this bad economy,” says Ed Broyles, Adeptra’s managing director of North America. “For our existing customers, demand for our products was high. Other customers wanted to do business with us in 2008, and then the economy took a hit.”

It helps that Adeptra’s client base is made up mostly of credit risk management firms that use the company’s solutions for fraud prevention and collections. “Credit card delinquency is double now what it was just a few years ago,” Broyles says.

Other niche verticals also saw continued growth. One of them was the government and law enforcement sector, where Speech Technology Center, a Russian voice security and call recording solutions vendor, managed to remain profitable in 2009 despite the recession. 

“We continued growing in 2009, and we are looking at profits for the year,” says Alexey Khitrov, president of SpeechPro, Speech Technology Center’s recently launched U.S. subsidiary. “Overall, we’re profitable, we’re growing, we’re launching new products, and we’re opening a new office in the U.S.”

The company had been recording annual growth rates of 30 percent to 40 percent prior to the recession, and though those rates were much smaller in 2009, it still maintained a positive financial outlook. “We didn’t see the growth we wanted to in some areas, but what helped us was our diversity of products,” Khitrov says. “Also, we sell a large portion of our products to law enforcement, and we find that their budgets are usually the last to be cut.”

Sweet for Self-Service

The financial results seen by these companies are typical of the speech industry in general, which by and large weathered the financial storm much better than most other industries. And inside the speech industry, perhaps no segment fared better than the interactive voice response (IVR) market.

“2009 was a great year for self-service—both voice as well as Web-based,” says Donna Fluss, president of DMG Consulting. “Even with the recession, there was a lot of investment in self-service IVR.”

Fluss expected the total IVR market to reach $2 billion by the end of the year.

Analyst firm Frost & Sullivan was also bullish on IVR. At the start of the year, when the economy seemed at its worst, the firm surveyed call center operators to gauge their interest in and plans for speech technologies during the next 12 to 18 months. At the time, 17 percent said all new applications they implemented would have speech only, 52 percent planned to adopt applications that combined speech and touch-tone, and 31 percent said they had no plans to adopt speech.

“We did that research at the beginning of the year, when things looked their darkest and the economy looked its bleakest, and there was still a significant uptake in speech planned,” says Keith Dawson, principal analyst for information and communications technologies at Frost & Sullivan. “There was a marked increase in the number of contact centers willing to front-end their customer-facing applications with speech.”

And though the final year-end numbers are not available, Dawson expects his firm’s predictions to hold true. “I do not anticipate any kind of change,” he says. “One of the results of the economic downturn will be an increase in [the use of] IVR technologies. The industry has gotten the message through that speech self-service is a real viable tool for reducing costs and improving relationships with customers.”

According to Drew Kraus, research vice president at Gartner, speech-enabled IVR vendors reaped the benefits of a major shift among their customers toward cost reductions. “It was very much a focus on how a speech IVR can reduce costs. They wanted to see how it can save them money,” he says.

Most of the money that filtered into the speech arena came in during the second half of the year, Kraus adds. “In the early going we saw a lot of planning [and] companies prioritizing what applications they would buy when they got the money. Toward the end of the year, the money started to loosen. We saw a lot more activity in speech, probably double what we saw in the first half of the year.”

A great part of that, as well, has to be from the increase in hosted offerings. Last year will go down in the annals of speech history as the time hosting took over the industry. For the first time, hosted solutions and managed services accounted for more than half of all deployments.  

According to Daniel Hong, lead analyst at Ovum, the trend began in mid-2008 and is likely to continue well into the future. “Spending on hosted speech continues to be greater than premises-based speech,” he says, “and this will be the case over the next several years.” 

Any technology type that a company could want—from IVR and analytics to text-to-speech and digital dictation—could now be found off-premises on the servers of a hosting company or third-party provider. Many speech applications have migrated to the cloud as vendors began positioning them as a service rather than a product.

“We certainly saw an interest in hosting,” Kraus says. “The cost to get into some applications is still prohibitive to some, so that drew down revenue streams [for some vendors]. But [hosting] is a recurring revenue stream.”

And even though the per-minute costs for many applications went down, “hosting companies have grown significantly in these tough economic times,” says Bill Meisel, president of TMA Associates.

Beside the cost, many companies that would not have gotten into a speech application because of the complexity to build it found a haven in hosted applications. “The cost to get into some apps is prohibitive. We certainly saw a lot of interest in hosting among firms for which speech would require so much customization,” Kraus says.

M&A Meltdown 

Another 2009 marker: It was the year that investment in speech didn’t come from larger speech technology vendors devouring smaller competitors in a crashing wave of mergers and acquisitions. Though analysts in late 2008 and early 2009 predicted centralization and consolidation of industry players would continue, the year saw far fewer high-profile acquisitions in the speech technology field than in years past. While 2008 saw Convergys swallow Intervoice, Syntellect consume Envox, and Voxeo gobble up VoiceObjects, M&A activity in 2009 barely captured the headlines at all. Some of the more (or less) notable activity included: 

• Syntellect’s acquisition of Pulse Voice, a provider of contact center and networking solutions; 
• Voxeo’s acquisition of Motorola’s VoiceXML browser technology;
• Spoken Communications’ acquisition of GotVoice; 
• Avaya’s successful bid for Nortel’s Enterprise Solutions, Government Solutions, and DiamondWare business units;
• Nuance Communications’ acquisitions of Jott and IBM’s speech patents; 
• Amcom Software’s acquisition of SDC Solutions;
• Sakhr Software’s acquisition of DialDirections;
• Genesys Telecommunications Laboratories’ acquisition of SDE; 
• Raytheon’s acquisition of BBN; and
• SVOX’s acquisition of Siemens’ speech unit.

Blame it on the recession. “A lot of companies just did not have deep pockets this year,” Meisel explains.

He and others, though, expect the companies with the deepest pockets, like Microsoft, Apple, and Google, to start investing heavily in speech companies and to make a bigger push into the space.

That, in fact, already started in 2009. Apple continued to capitalize on the popularity of its iPhone and iPod, and added speech applications to both as a way to further boost sales. Microsoft finally started to collect on its investment two years ago in Tellme Networks, and in 2009 released an enhanced outbound IVR service based on the Tellme platform. Microsoft’s other advances included the addition of  an auto-attendant solution and Voice Mail Preview, a speech-to-text application that sends a preview of voicemail messages to users’ inboxes, to its Exchange Server 2010; Bing for Mobile and Bing 411, mobile speech-enabled versions of its new search engine; and Talk to Windows 7, a speech recognition application added to its newest operating system to let people use their voices to control their PCs, launch applications, and dictate into Windows applications. Google jumped into the speech waters with both feet, as well, with its launch of the Google Voice suite of phone applications and several speech-enabled search applications.

The Winners

For many, 2009 will go down as the year that brought speech recognition, text-to-speech, speech analytics, speech-to-text transcription, audio search and mining, mobile voice search, voice command and control, and supporting voice technologies into the mainstream. With companies like Microsoft, Google, AT&T, and Ford all launching massive national advertising campaigns that featured speech, the technology finally began to find its place outside of the call center. With serious money being spent on consumer electronics with embedded speech, talking to your phone, your car, your computer, your videogame system, and even your alarm clock finally became acceptable. 

“Now, with speech appearing on mobile phones, in automobiles, and in advertising by companies with deep pockets and big-time credibility, I see speech crossing the chasm where people are now saying, ‘Speech is everywhere, and it works,’” Meisel says.

Like many others, Meisel argues that the mobile phone is one of the primary driving forces behind the progression of speech technologies into the consumer market. “The mobile phone is driving the need for speech recognition because of the small keyboard, but also because it now has to be used hands-free,” he says.

Feeding off of that trend, 2009 will also go down as the year that speech technologies changed the way consumers and professionals alike handle their voicemail messages. Basic visual voicemail and voicemail-to-text applications—both of which use speech recognition to convert all or part of voice messages to text that can be delivered to an email inbox or as an SMS to a mobile device—became almost ubiquitous in 2009 and quickly started turning traditional voicemail into a techno-relic. With just the touch of a button, both types of applications let users see, hear, or read voicemail messages—complete with other important information, such as date and time of receipt, as well as message duration—how they want to and in the order they want them. No more dialing multiple phone numbers, remembering multiple passwords, and wasting valuable minutes to retrieve less-than-urgent phone messages.

Increasing competition in this space, from both start-ups and long-standing speech technology providers, has forced voicemail conversion companies to add functionality and dig deeper into the speech well as a way of setting themselves apart. One of the pioneers in this area, SpinVox, for example, in 2009 introduced features that let users speak posts to blogs or social media sites and speak personal memos to themselves. The company also joined a growing industry trend, where companies partner with industry powerhouses to position their offerings as part of larger unified communications suites. SpinVox’s service, for example, is now available in Nortel’s Call Pilot unified messaging service.

“We’re seeing a lot more adoption of these voicemail applications, driven by the unified communications approach that companies are moving toward being able to support,” Gartner’s Kraus explains. “It’s all about bringing applications to the business user who is not necessarily at his desk. A lot of the growth of [unified communications] and unified messaging is about extending benefits to the mobile user.”

But not everyone is ready to tout the mobile market as speech’s salvation. Despite modest gains and the release of some very interesting applications, the mobile market for speech didn’t see the huge growth that was originally predicted. Many analysts and consultants still maintain mobile speech applications are very much in their infancy and will likely remain there until the industry figures out a way to monetize them. While recent economic indicators point to a recovery, bankruptcy and collections agents in 2009 were busier than ever. As such, it makes complete sense that financial industry leaders invested heavily during the year in advanced contact center and unified communications software. Chief among them was outbound IVR. 

“Among the more mainstream companies, we’re finally seeing speech being integrated into customer-facing operations with more proactive outreach,” Kraus says. “These companies are now looking at how they can do more in a speech environment.”

As predicted, outbound IVR also showed significant gains in the travel and healthcare sectors, with “companies offering much greater personalization within their outreach efforts,” according to Kraus.

Along those same lines, 2009 was a big year for speech analytics, which continued a long-standing trend of triple-digit growth. A big contributor to that success was the willingness of vendors to reposition their offerings to adjust for the sluggish economy.

Early on in the year, “there were a lot of speech analytics vendors having trouble getting their speech applications into the hands of contact center managers at the same price point they were offering in 2007 and 2008,” Frost & Sullivan’s Dawson explains. “One of the biggest changes in the analytics market was the emergence of smaller-scale, stripped-down tools that are cheaper and easier to deploy.” 

A Customer Focus

It also helped that the recession forced many user companies to shift their focus to customer retention and driving a greater pursuit of voice-of-the-customer solutions.

“Speech analytics performed very well because of its value proposition,” Fluss says. “Companies have seen so many high-value and quantifiable results in such a short amount of time.”

All told, not every area of speech technology emerged from 2009 victorious. For example, the voice biometrics market—which has traditionally seen a high cost of entry to begin with—took a sizable financial hit last year, but even the downturn in that product area wasn’t as bad as many had predicted.

“The economy affected us in a number of ways,” Speech Technology Center’s Khitrov explains. “The financial crisis was unfortunate for the voice authentication market. Solutions were getting to the point where they could be used in the market, but then a lot of our target companies—banks and financial services firms—were hit with financial difficulties.”

With few exceptions, technological innovation across the board also suffered greatly as a result of the economy. The research and development side of the business really didn’t see a lot of excitement in 2009. “With regard to new applications or new technologies, I just didn’t hear anything last year,” Meisel says.

And that applies as much to user companies as it does to vendors. On the user side, for example, many companies backed away from technical advances in favor of the tried and true. 

“Until the recession hit, we were seeing more of a progression toward natural language,” Meisel points out. “But it’s expensive to do, and you have to collect lots of data to do it, so companies scaled back their efforts.”

Rather, “there was a huge push this past year in optimization, to improve and enhance the applications that were already in use,” Fluss says. “Existing applications themselves have been vastly improved.”

Coupled with that, 2009 saw vendors minimizing start-up costs, shortening implementation times, and delivering better Web-based tools to manage applications, many analysts and consultants agree.

“It’s something that started in 2009, and it’s going to continue,” Dawson says. “We’re going to see continued greater integration of speech with other technologies that are not necessarily speech-related. We’ll see increased linkages between speech and data technologies.”