The Battle for Speech Recognition Market Dominance

The contact center speech recognition market is maturing, but it is far from slowing down. On the contrary, it’s experiencing an upswing in sales that it hasn’t seen for at least three or four years. This market is consolidating, making room for a variety of new entrants and is finally growing in port size. According to Steve Cramoysan of Gartner DataQuest, "preliminary analysis of the 2004 speech recognition market reveals an overall growth in port license shipments of 7.2 percent when compared with the figures of 2003." (Source: Gartner, February 15, 2005.)

The challenge for the speech market is its "image": It’s never gone through a period of being the hot and sexy technology.  I don’t expect to see this market take off unless there is a major breakthrough in technology or market dynamics. However, at some point in the next 10 years, the vast majority of companies with a contact center will adopt some form of speech technology. The acceptance will happen slowly, with sales of speech solutions spread among vendors in a variety of categories.

Figure 1: The Battle for Speech Recognition Market Dominance
Source: DMG Consulting, LLC
Market Combatants
The speech market has struggled for two decades and it’s not clear which category of vendors will be the winners. This market now has four primary groups of contenders (see Figure 1):

  1. Speech specialists – vendors that specialize in selling speech software/engines. This group includes: ScanSoft/Nuance, telisma (France), Loquendo (Italy), firms expected to enter the market from China, and possibly others coming from universities.
  2. Middleware providers – vendors that embed speech software capabilities in a business application platform. This category includes IBM and Microsoft.
  3. Package application providers – vendors that build and sell standardized out-of-the-box speech recognition solutions. Companies of this type include Apptera, Datria, Fluency Voice Technology, Harborlight Technologies, Metaphor Solutions and TuVox.
  4. Business Process Optimization (BPO) firms - these are outsourcers or hosting companies. Vendors include: Convergys, IBM Global Services, Tellme, Unisys, VoiceGenie and West Corporation. Network service providers are also active players in this market, such as ATandT, British Telecom and MCI, to mention just a few. There is also an emerging group of hosted contact center infrastructure vendors, including Avaya, Cincom, Cisco, Contactual, CosmoCom, Telephony@Work and UCN, who are expected to add speech capabilities to their hosted offerings in the next couple of years. (Hosted infrastructure providers sell both enterprise premise-based and network-based solutions.)

We don’t yet know who the winners in this market will be, but we’ve already seen some of the losers. To the great frustration of end-user customers and venture capital firms, ScanSoft has acquired the two best-known market pioneers. SpeechWorks was acquired in September 2004 and the Nuance in September 2005. The combined company now goes by the name Nuance. The harsh reality is that despite their contributions to advancing speech technology, neither of these companies was profitable and given the state of the market, it didn’t appear that they would succeed on their own.

Nuance is currently the largest provider of speech engines for contact centers in North America. Its acquisitions in the speech market have left it with many overlapping products and Nuance recently began introducing a new line of consolidated offerings. The Nuance acquisition should help ScanSoft finally reach scale and profitability.

Speech middleware vendors, Microsoft and IBM, could easily overcome Nuance in sales by leveraging their strong relationships with IT departments in and out of North America. Both IBM and Microsoft have major global marketing machines. If they decide to turn them on to promote speech sales, Nuance will be greatly challenged. Additionally, if an outsider, such as telisma or Loquendo introduces a "disruptive" speech offering, the new entrant could also give Nuance a run for its money. 

Speech Recognition Market Opportunity
According to Gartner, ScanSoft owned more than 77 percent of the speech recognition ports shipped in 2004. This sounds like a large number, but it’s not. If it were, Nuance and SpeechWorks would still be in business. Based on DMG Consulting LLC estimates, speech recognition has penetrated less than 25 percent of the North American contact center market and a substantially smaller portion of the worldwide market. Nuance has the advantage of a large customer install base, but the greatest opportunity for market leadership lies in selling to the more than 75 percent of the contact center market that has not yet implemented any speech recognition applications.

Why Adoption of Speech Recognition Is Slow
There is no question that speech recognition provides "great value" to customers, particularly in the area of self-service. Unfortunately, the cost of speech recognition implementations remains very high, which is a huge obstacle to investment. It’s common for a custom-built speech recognition implementation to cost more than $250,000. This is a prohibitive figure for many companies, even if they’ve done a return on investment calculation (ROI) and determined that the investment will pay for itself in less than 12 months. ROI matters, but so does the up-front cost of the investment. (A company can invest in an auto-attendant or directory assistance application for less than $25,000, or can use a hosting company to avoid significant start-ups costs.)

The high cost of implementing speech cannot be blamed on the software. According to Gartner’s Steve Cramoysan, the price of speech recognition engines fell by 10 percent "from $850 per port in 2003 to $770 in 2004." Software licenses are one of the smaller cost components in a speech recognition project. (See The Cost of Building Speech Applications in Contact Centers by Donna Fluss at http://www.crmxchange.com/speech_technology/jan05.asp). The price of speech software accounts for 15 percent or less of the cost of an implementation – in other words it’s less than one-sixth of the total. The largest component is professional services.

Speeding up Market Acceptance of Speech
If current trends in the speech market hold, the rate of adoption will continue to crawl. However, there are developments that could speed up its acceptance.  Laurent Balaine, president and CEO of telisma, a speech recognition software company based in France, believes that there is great opportunity to deliver speech recognition software that is substantially easier to deploy. If telisma succeeds with this mission and successfully enters the U.S. market, it could quickly become a serious player in North America and around the world.

Speech standards, VoiceXML and SALT, will help to simplify and reduce the cost of speech implementations. (See Speech Standards Improve Service Quality, Customer Experience and Reduce Costs by Donna Fluss at http://www.crmxchange.com/speech_technology/mar04.asp). The promise of speech standards is that they allow for the development of platform-independent packaged solutions. There has been and continues to be great progress in the area of speech standards, but much more work is required before users will be able to purchase packaged applications off the shelf and run them on any platform.

What Opportunities Remain Open
The contact center speech recognition market is small and under-penetrated. There are a large and growing number of vendors, with a variety of business models, fighting for market share. They all see the huge potential of speech technology, but no one has yet figured out how to exploit the market opportunity on a large scale. Industry standards are starting to simplify implementation and lower the cost of speech recognition projects. However, many end users are waiting for technology innovations and/or easier and less expensive ways to implement these systems before they make any investments. Until that breakthrough arrives, market leadership remains up for grabs.

Donna Fluss is the principal of DMG Consulting, LLC, delivering customer-focused business strategy, operations and technology for Global 2000 and emerging companies. Fluss, a recognized leader and contact center visionary, is a highly sought-after writer and speaker. She is author of the annual "Quality Management/Liability Recording Product and Market Report" and "The Real-Time Contact Center," published in August 2005. Contact Fluss at donna.fluss@dmgconsult.com .

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