Daniel Hong, Senior Analyst, Datamonitor
Q. What is the market opportunity for hosted speech services in North America?
A. Opportunities in this market are considerable. The industry has witnessed a strong uptake in hosted speech services in the past two years, and demand is expected to grow even more over the next five years. At the end of 2004, revenues from hosted speech services in North America were $418 million. By the end of this year, we expect that number will rise to a little over $450 million. And by 2009, spending on hosted speech services will more than double to reach over $840 million in North America.
Q. What are the top trends in the North American hosted speech market?
A. The market is quite dynamic and new trends are constantly emerging, as a result we have witnessed the emergence of new market trends over the past 12 to 24 months. The top three concerns in the market today revolve around security, business continuity and performance. As a result, the trends we have seen are: a growing demand for premise-based managed services, sharpened focus on reliability and redundancy, and an increased demand for CCXML.
Q. What are the market drivers for hosted speech services in North America?
A. Once viewed as an immature and expensive technology; speech has become a commercially viable cost reduction and customer service improvement mechanism. However, the relatively high costs of the technology have deterred many businesses from investing in speech. As a result, a number of businesses have looked to hosting to leverage the benefits of speech without having to absorb the heavy upfront costs for a speech solution. In addition, the success of hosted speech has been supported by the emergence of VoiceXML in the enterprise, the growing market awareness of speech, and the greater flexibility of deployment offered by hosted speech services companies.
Q. What types of companies are in the North American hosted speech market and who are the major players?
A. There are generally three types of providers in the North American market for hosted speech: traditional hosted IVR providers, pure-play hosted speech providers, and service providers.
Traditional hosted IVR providers are typically established companies that have had years of success in providing hosted DTMF services to the market. In recent years, these companies have begun offering hosted speech services in efforts to increase revenue and improve market positioning. The majority of traditional hosted IVR providers have a large installed base of DTMF customers and DTMF port capacity. The majority of IVR systems residing in their data centers are legacy systems and these companies have only recently begun migrating to VoiceXML platforms. Regardless, most of these companies have become VoiceXML experts over the past few years. Companies that would fall into this category include: Convergys, First Data Voice Services, IBM, ICT Group, Intervoice, Syntellect, Soundbite Communications, Teleperformance Interactive, Vail and West.
Pure-play hosted speech providers are typically newer generation companies that began business during the bubble years. These companies have built their business models entirely on providing hosted speech services and many have hit profitability. However, some companies still rely on venture capital funding to increase capacity and marketing resources. Pure-play hosted speech providers do not have a large installed base of customers, unlike traditional hosted IVR providers. However, these companies were among the first to implement VoiceXML platforms in their data centers, and in doing so have developed strong VoiceXML expertise. Pure-play hosted speech providers include companies such as: Angel.com, BeVocal, NetByTel, TellMe and Voxeo.
Service providers are telecommunications companies that typically provide hosted speech as an offering within their hosted call center services portfolio. Like traditional hosted IVR providers, service providers have had years of success in providing hosted DTMF services. The attractive revenue opportunities in hosted speech have driven service providers to offer speech as a service. Service providers have a distinct advantage, since they own the network and can therefore price lower than traditional hosted IVR and pure-play hosted speech providers. Yet this is usually not the case in most service provider deals. Many service providers do not have the same level of in-house VoiceXML, speech application and platform expertise as traditional hosted IVR and pure-play hosted speech providers. Application development is therefore usually delegated to a third party and platforms are purchased from an IVR vendor. Service providers' network ownership, multiple customer touch points, largest installed base and strong brand equity will make them the greatest competitive threat to the other providers in the market. However, they must first prioritize speech and invest significant resources in hosted speech services. Service providers in North America would include companies such as: AT&T VoiceTone, Bell Canada, MCI, Qwest, Sprint, Telus and XO Interactive.
There are also companies such as Edify, Datria, TuVox and Voxify that would not fall into these categories, but, at the same, time they also provide hosted/managed speech services through partners. These vendors provide the speech applications while the back-end IVR platform and connectivity are provided by hosting partners.
Q. What types of IVR platforms are found in the hosted IVR market? And which ones are the most pervasive?
A. The North American hosted IVR market is heavily populated with traditional DTMF IVR systems that provide basic, yet, effective routing and self-service capabilities to businesses. While the majority of hosted DTMF services in North America will continue to be handled by traditional DTMF IVR systems through 2009 (due to the high costs of switching out the traditional systems for VoiceXML systems), hosted providers are expanding their speech capacity on VoiceXML platforms, rather than speech-enabling their traditional platforms.
A handful of hosted speech providers are implementing Microsoft Speech Server (MSS) in their data centers to further bring down the costs of hosted speech solutions both to clients and internally. Companies such as Intervoice, Message Technologies, Pulse and Vail have deployed MSS in their data centers and are providing hosted speech services serviced off of this platform.
*Daniel Hong has just authored a market research report on the hosted speech and DTMF market in North America. This report, "Voice as a Service: Understanding Trends in Hosted Speech" (DMTC 1111), is available now on
www.datamonitor.com . If you have any questions, please feel free to contact Daniel Hong at
dhong@datamonitor.com .
Daniel Hong is a senior analyst in Datamonitor's Technology practice where he currently covers voice business. He is the author of numerous reports that examine the current opportunities, relevant issues and future direction of the global voice business market. Hong has also written several industry white papers and engaged in numerous consultancy projects for companies in the voice business and outsourcing markets.