Opinions Fly with the Merger Between ScanSoft and Nuance

Newswires and other online news feeds were buzzing late Monday afternoon as news about the merger between ScanSoft and Nuance Communications,  hit the wire. The two companies signed a definitive agreement whereby ScanSoft will acquire all of the outstanding common stock of Nuance, merging the two organizations into a single company. After the transaction is closed, the combined company will assume the name 'Nuance.'    

According to Bern Elliot, vice president and area lead for Gartner Research Contact Centers, "Overall, I think this is good. I think it is good for the companies involved and I think it is good for the market. The companies individually were going to have trouble with viable business models as they continued to compete; while at the same time entry of big, new competitors like Microsoft and IBM come in with their products in a market that is less and less technically differentiated. So by coming together they really provide a powerhouse speech provider that is capable of competing in this next generation of the market. 

Elliot does, however, see   two possible problems: 1. They are very far apart - three time zones away from one another on different sides of the country and 2. They are historically fierce competitors, which will make organizational issues a little more difficult to solve, so that is something that they will have to figure out."  

Commenting on the merger, Elka Popova, industry research manager for the IP Communications and Enterprise Solutions Group at Frost and Sullivan, commented, "I have to admit I was surprised by the merger.  I knew Nuance had to be acquired sooner or later (not profitable in a slowly growing market, facing increasing competition from an ever growing competitor, large amount of cash available to make it an attractive target), but never thought they would agree to be merged with their former archrival."  

Bruce Morse, vice president, IBM Contact Center Solutions comments, "We believe this acquisition improves IBM's position in the marketplace. The combination represents a further consolidation of vendors that narrowly specialize in speech, which means customers have less choice and are left to depend on a single vendor and a proprietary programming model."  

News about other companies' involvement in the transaction had been surfacing for some time now and many felt that something was in the air and it was just a matter of time before the dust settled to reveal an acquisition involving Nuance.     

Popova said, "I was debating whether Microsoft or IBM were better candidates or maybe some other large telecom/ IT vendor with no speech presence but offering products that could be enhanced/integrated with speech would choose to acquire Nuance."  

According to Donna Fluss, principal of DMG Consulting, "In terms of 'Does it impact the day to day for end users?' the answer is 'Not immediately.'  However, over time in any merger, some technologies get retired and other ones continue and users should be asking what will be staying and what will be going. The good news is that ScanSoft does know how to do a merger. The other interesting piece is that Nuance and ScanSoft have very different business models.  ScanSoft was heavy duty into consulting and Nuance was more into selling its technology so there the partnership is absolutely synergistic. Whether combining Nuance and ScanSoft will result in a strong profitable speech company remains to be seen, but I hope so because that is what the market needs."  

Overall, acceptance of the merger seems to be sinking in within the industry, but this is only the beginning of a competitive market expanding to encompass a broad range of products and services offered by the speech industry.  

Art Schoeller, senior analyst for The Yankee Group, added: "Industry consolidation is a sign of further market maturation.  However, customers and partners need to be concerned and to press the new firm for a reasonably detailed product road map. After all, Scansoft is still in the midst of consolidating the Lernout and Hauspie and Philips speech technologies, so now add another product set to the mix. Their support for VXML and MRCP does not guarantee portability and there are a number of applications out there that were deployed before these standards were established. Also, I fully expect that the Nuance Voice Platform will be de-emphasized and only maintained for existing customers.  This is good news for partners Genesys, Avaya, Nortel, and Cisco."  

"To the extent that MandA activity generally reflects a growing maturation of a market and related technologies, this announcement supports what we've seen in the growing acceptance of speech in the marketplace. Intervoice has a successful history of product integration and services support with Nuance, ScanSoft and Microsoft, so we look forward to continuing to offer our customers options that protect their investment as the market continues to evolve," said Jim Gardner, director of global marketing and training at Intervoice.  

IBM's Morse believes that the combination will have a limited impact upon the contact center market space that both the merged company and IBM support, "Despite this combination, we believe that contact centers remain under pressure to provide customers a consistent experience across all channels, including speech. But, they are limited in their ability to respond because their infrastructure lacks the capability to integrate all channels of customer interaction with enterprise applications across the business, beyond the call center. Even before their announced combination, either company was unable to fulfill this market need. IBM takes a different approach where we offer a broad range of capabilities to enable the contact center to deliver a consistent customer experience across all channels of interaction, leveraging open source-based programming models. IBM uniquely has 30 years of experience in speech self-service, over 250 speech patents, and the knowledge and skills of over 1000 Contact Center Optimization professionals located in over 50 countries."

Simon Loopuit, CEO at VoxGen believes that the combination is further proof of the maturation of speech technologies as a viable solution for enterprises and service providers and will force larger investments from both IBM and Microsoft, "The huge investment demonstrated here, proves that the speech recognition market is becoming an important ground for development and it is likely to encourage significant investment from big players such as IBM and Microsoft. As a result we will see enhanced competition and more innovative technology solutions becoming available."

"VoxGen will continue to work with key providers to ensure that we are developing and deploying intelligent speech recognition solutions," said Loopuit.

According to Judith Markowitz, PhD, of J. Markowitz, Consultants, " Like other Scansoft mergers and acquisitions this one folds a market-leading competitor (and sometimes partner) into the company. Among other things, Nuance brings the more powerful speaker recognition that ScanSoft has been seeking along with expertise and market dominance in application growth areas, such as call steering. In turn, ScanSoft contributes leadership in auto attendant and other applications as well as a palette of high-quality speech synthesis and embedded technologies."

"The new Nuance needs to quickly and effectively communicate its channel strategy to partners and integrators who are justifiably concerned about channel conflict. Even so, integrators may exploit the freedom of VoiceXML and SALT to forge relationships with other speech suppliers" said Markowitz .  

Edward Miller, president of LumenVox, added, "LumenVox welcomes the merger between ScanSoft and Nuance.  Our Speech Tuner currently supports both Nuance 8.5 and soon ScanSoft OSR.  This is a great time for us to establish and differentiate ourselves as the other quality speech recognition vendor in the United States."    

A Microsoft company spokesperson had this to say in response to the merger: "Microsoft believes that speech technology has reached an inflection point, where it will have a significant positive impact on business and people. In order for the technology to reach its full potential, it must have deep platform support, world-class developer tools integration and a rich ecosystem driving the technology forward. Microsoft is focused on delivering these critical components to its customers."  

"The merger of ScanSoft and Nuance is a positive move for the speech recognition industry," said Loopuit. "Developments in the technology mean that speech recognition is now recognized as a serious channel to support CRM and business strategies, and this latest announcement is a clear example of the growing importance and value that speech recognition technology is taking on."  

Markowitz concluded, "We are also likely to see competitors become more aggressive in staking out new market positions for themselves. Notably, Microsoft, which recently released a new version of its speech server with expanded functionality; IBM, whose re-organization accorded speech priority status; and Philips, which is building market share in North America and starting to reach beyond healthcare."  

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