The 451 Group Releases Report on Growth of Speech Technologies in Enterprise IT

NEW YORK - A report released by technology industry analyst company, The 451 Group, focuses on the challenges and opportunities facing vendors in the speech technology market. The 451 Group - which notes that the speech technology market has yet to really take off, despite many years of the industry's promises, and remains "structurally messy" in terms of market taxonomy - believes that vendors' fundamental approaches to how speech technologies are packaged and sold are limiting more widespread adoption of these technologies in enterprise IT.

This report is being issued just prior to the speech technology vendors' biannual industry conclave - SpeechTEK - which is being held in San Francisco February 21-23. Findings by The 451 Group in this 451 Special Report - titled "Speech technology market: Hanging up on growth?" - raise many questions that the industry has wrestled with for years, which are now coming to the forefront as the speech revolution has failed to take hold.

451 analysts believe that two key factors will make or break the speech technology market over the coming 18 months:

• Finding a new value proposition for speech technology: Speech technology applications must do more than simply automate touchtone activities; they must deliver higher-order business benefits rather than incremental improvements.
• Developing a horizontal technology layer; deconstructing product bundles: For speech to become an effective enabling technology, it requires the creation of an abstraction layer that allows the simple interfacing of speech with enterprise IT infrastructure.

Automated speech recognition (ASR) technology allows users to access information and services via spoken commands - enabling automated interactions ranging from scheduling an overnight package to accessing financial accounts and other premium services. The ASR market segment - referred to here simply as the speech technology market - represents roughly five percent of the overall market for interactive voice response (IVR) technology and services; the other roughly 95 percent of the overall market is made up of IVR technology based on touchtone menus in which users select choices by pushing buttons on a telephone.

For many years, the speech technology market has reportedly been "on the verge" of rapid growth, but the overall market and its vendors' results have shown mild growth - both largely remaining flat. Vendors have in the past tried various approaches to spur growth, including:

• Encouraging more open frameworks, such as development of the VoiceXML markup language for "voice browsing," an effort designed to create open-standards voice interfaces that use speech recognition and/or touchtone for input and prerecorded audio and/or text-to-speech synthesis for output
• Attempting to build off-the-shelf, "packaged" applications to reduce the total cost of implementation and thus increase customers' return on investment.

Adding to the business challenge for vendors, the speech technology market is structurally messy, making the creation of a coherent market taxonomy - and thus the normalization of discrete product categories - difficult. Vendors straddle multiple niches, and the market is characterized by the tremendous amount of labor-intensive custom work that vendors carry out for individual customers. Even those companies and sub-sectors that appear on the surface as if they should be selling "off-the-shelf solutions" are often providing highly customized (and subsequently high-cost) implementations that have questionable return on investment for customers.

This 451 Special Report, by presenting and analyzing three potential scenarios for marketplace direction, provides insight into the competitive opportunities and challenges for vendor companies within speech technologies, as well as the subsequent positioning, investment opportunities and marketplace MandA that will ensue. It also helps to deconstruct and categorize vendors in this market - building out an effective framework for understanding the market taxonomy.

The report is 111 pages in length and was written by Steve Coplan, sector head for networks and media, with support from Chris Noble and Steve Wallage, both directors of research at The 451 Group.

Key Findings of this 451 Special Report

• The next 18 months will be a crucial time for vendors in the speech technology market, and over this period competition will increase, as well as MandA activity. Consolidation of the currently fragmented industry is imperative, if not inevitable. Moderate industry growth will not sustain the existing number of players, and no single vendor has the appropriate mix of technology to push speech forward. At the speech recognition layer, it's clear that only a single vendor will thrive.
• The conventional wisdom would suggest that IBM and Microsoft will eventually emerge as the winners in the speech technology market - after all, they have no vested interest in retaining the market's structural barriers, and they have the requisite financial resources to invest for the long term. Both have made strategic commitments to the space and have put development resources behind speech middleware, and more significantly, speech recognition software. But as it stands, 451 analysts don't believe either vendor has the tools or commitment to transform the technology and remove the complexity from the development of speech applications. Both IBM and Microsoft will need to buy that expertise - and speech market participants need to find a home in the broader enterprise IT firmament.
• Enterprise software vendors and systems integrators that have largely held back from dabbling in speech should consider the significant potential of leveraging their investments in customer-facing Web infrastructure, business intelligence software and customer relationships to replace humans with systems in labor-intensive call-center environments.

"The speech technology market faces a vicious circle," said Steve Coplan, sector head for networks and media at The 451 Group. "Vendors have not been able to build a volume market for speech software, so they remain reliant on professional services. But the reliance on specialized professional services acts as a brake on volume deployments. In addition, the specialized nature of speech technology means that speech experts often remain segregated within their organization, and the broader enterprise IT team does not get involved in speech technologies. On the other hand, IBM and Microsoft don't have the direct speech expertise they would need to remold their existing toolsets to deal effectively with speech technology's complexities. Speech remains an island.

"Moreover, less-than-stellar customer-side return on investment from speech implementations stands in the way of the speech technology market making substantial breakthroughs in its business. The total cost of ownership (TCO) of speech applications is too high relative to alternative investments that are competing for corporate budgets. The amount of labor-intensive customization involved in building these applications compounds the issue. Services continue to account for a disproportionate percentage of total implementation costs, which leads us to believe that TCO estimates may prove unrealistic."

To learn more about this report, or to discuss developing a client relationship with The 451 Group, contact Simon Carruthers, vice president of research services, via phone at 212-505-3030 x103 or via email at: simon.carruthers@the451group.com.