Microsoft Buys Tellme

Microsoft fired a new salvo in its so far unsuccessful war to catch up with Google in the search arena. The software giant bought Tellme Networks, a voice services and automated directory assistance provider. Tellme may not seem too much like an Internet search company at first glance, but it is — especially when you consider where the next battle over search will be fought.

Though financial terms of the deal were not disclosed, it is widely rumored that Microsoft spent between $800 million and $1 billion to acquire Tellme. So what is Microsoft getting for that kind of money? Well, for starters, the company has been around since 1999, and it is already profitable. The Mountain View, Ca.-based operation boasts 320 employees — including CEO Mike McCue, who, interestingly enough, used to work for Microsoft rival Netscape. Tellme has raised more than $230 million through several rounds of venture capital. The last of these rounds came in late 2000; Tellme is currently rumored to be making more than $100 million a year.

It’s the automated directory assistance and call center services that are bringing in the money for Tellme. Clients of these services include Fedex, Cingular/AT&T, American Airlines, American Express and other large companies. Indeed, Tellme answers millions of calls every day. Customers use them to find information about local businesses, driving directions, sports scores, stock quotes, weather, news, movie show times, and more. Most of the time, people who use Tellme’s services don’t even realize that Tellme was the one providing the service.

When you think about it, then, Tellme is providing its users with search; it’s just not Internet search in the form that most of us are used to. It’s mobile search and local search, enabled by the telephone’s voice interface. As the software giant explained in the press release announcing the acquisition, "Microsoft and Tellme share a vision around the potential of speech as a way to enable access to information, locate other people and enhance business processes, any time and from any device." In short, Microsoft believes that the next arena for the battle to win the hearts and minds of searchers is going to be mobile and local search, and that Tellme has what it needs to win.

"Speech is universal, simple and holds incredible promise as a key interface for computing," Microsoft CEO Steve Ballmer noted. Naturally, Microsoft has a lot at stake when it comes to making computers easier to use. The company has spent the last decade developing speech, handwriting and touch as methods of input; even so, the most common input method for the PC is still the keyboard. That may be good for now, but it’s apparently not good enough for the future.

"We’ve made great strides in speech technologies, but have only scratched the surface of what is possible," observed Jeff Raikes, president of the Microsoft Business Division. So if Microsoft really sees voice as the interface of the future, it makes sense that it would seek to purchase a firm that has developed and refined the interface to the level that Tellme clearly has.

The two companies do indeed share that vision. "Tellme was founded with the idea that anyone should be able to simply say what they want and get it from any device, starting with the phone," explained Tellme CEO Mike McCue. What does that mean in the context of the acquisition? Well, in the area of mobile and local search, that means combining Microsoft’s local and mobile search offerings with Tellme’s speech expertise, of course; Microsoft thinks that will allow it to take those offerings to the next level.

But it also means software plus services. Microsoft has long-term plans to use Tellme’s technology to enhance its voice-enabled applications, including the Windows Vista operating system, the Microsoft Office system, and mobile applications such as Windows Mobile and Windows Automotive. The point, according to Microsoft, is to allow users to interact with the applications in the way that seems most natural.

Tellme’s experience with speech could make it easier for mobile phone users to perform a Live search. This kind of thing is sorely needed; speech interfaces have been getting better, but they still have a ways to go. While they can work well for relatively limited interactions, many people still experience frustration and despair when interacting with a large company’s robotic call center agent. The last thing Microsoft needs, if it hopes to eventually win the search war, is for its search users to get so aggravated they give up on using the service.

Mobile search means mobile devices such as cell phones. Tellme has been doing significant work in that area. ZDNet reported that it has been testing an application for cell phones that delivers the appropriate data to the phone when users tell it out loud what information they need. Another service Tellme has been testing lets users send a text message with a search query, and receive the result via text message.

Users won’t always want to type in their queries, especially in a mobile context. Imagine that you are driving your car, so you don’t have your hands free to type or use text messages on your phone — and you really shouldn’t be trying to dial a phone number. You’re hungry, and you want to locate the nearest pizza place. You are going to want to be able to just ask your phone — or your car, for that matter, since this could be tied into Windows Automotive — where it is, and get directions.

That’s just the kind of scenario that McCue envisioned in the discussion of Microsoft’s acquisition of Tellme during a conference call. "We think that one of the critical things with search, particularly on the phone or especially in you car is that you should be able to use voice as an interface to be able to find things easily. People who have a phone are on the go typically, they don’t want to have to type things all the time to get what they want. So we really like the idea of allowing consumers to just say what they want and get it…It’s almost kind of like the mouse was to graphical computing, we think speech is to mobile computing." Given how important the mouse has become to computing since its invention, this is a pretty big deal.

Another exciting idea going forward relates to the ability to use the speech interface in a cross platform way. McCue thinks that "with cars, and with the PC, with your television, why do you need to navigate through all these menus on TV when really you should just be able to say, show me The Daily Show, and now you’re watching what you want to watch on TV just by speaking to it." Think about that for a second. You would give your TV a command, and it would perform a search operation to do your bidding. You would not have to set anything, check listings for the time, or even find the right channel — and you’re not even conscious of the fact that you’ve just performed a search operation. Now that’s seamless!

One of the points mentioned in the conference call was that the Tellme platform learns from the speech processing it does. As one ZDNet blogger put it, "the more speech the Tellme platform processes the smarter it gets. If you embed Tellme with all of Microsoft’s products you could have one smart voice system."

But Microsoft could still face some challenges in getting its search on cell phones. As things stand now, anyone attempting to do that needs to forge a relationship with the wireless carriers. As Googlewatch pointed out, trying to get a deal to have your stuff planted directly "on the carrier deck" is tough, "and often involves signing over one’s soul." Microsoft isn’t the kind of company that would take kindly to being pushed around like that; it is far more likely to try to find a different path that accomplishes the same thing.

For that matter, so is Google. Rumor has it that the search engine giant is working on its own mobile phone. Signs that have been held up over the past few weeks as pointing in this direction include patents filed by Google on predictive mobile location-based search technology, and a comment in a venture capitalist’s blog. Some have said it’s probably not a phone, but more likely to be a BlackBerry-like device, or even a full-fledged PDA with Google software.

Of course, a Google phone could give the company a leg up in mobile search that rivals Microsoft’s competitive advantage in purchasing Tellme. There’s no need to worry about getting on the carrier deck if you own the phone! Google, of course, is not commenting on the rumors, though it has signed a number of deals related to mobile search and is known to be working on mobile advertising.

Or perhaps we’re looking at it too narrowly. The next battleground for search isn’t mobile and local — or at least, it isn’t just mobile and local. Given the possible applications for Tellme’s speech interface, and the various technology areas that Google is known or suspected to be involved in, the next battleground for search is going to be — everywhere. It’s nothing short of making search seamless and ubiquitous across all of your devices and environments: at home, at work, in your car, everywhere. And you thought the current competition over search was cutthroat!

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