Microsoft acquires Tellme- Is it about mobile search?

The news of Microsoft acquisition of Tellme has being doing the rounds in the silicon valley for days. Now, its official. Tellme, founded in 1999, offers voice services for the phone, including its popular mobile search services on 1-800-555-TELL. Businesses use Tellme’s voice services and platform to provide customers with voice-access services ranging from banking to package tracking. According to Mike, CEO of Tellme, around one in every three americans use their platform once a year, pretty neat I say.

Industry veterans from the late 90s talk about the roller coaster story of Tellme, from a high profile voice portal company to becoming another victim of the crash, .......only to rise again. Kudos to the management who did a tremendous job of the difficult task of creating a business case and indeed a profitable revenue stream from an otherwise free portal. Today, amongst its customers, Tellme counts AT&T, FedEx,Merrill Lynch, E*TRADE and American Airlines amongst others who use its platform and services to answer millions of calls every day for information such as directory assistance, tracking mail/post, airline details, finding local businesses, driving directions, sports scores, stock quotes, weather, news, movie show times and more. The press release from Microsoft notes, Tellme powers billions of calls to hundreds of phone services used by more than 40 million people every month.

The company is privately held. Commentators have reported $230 million of funding. Mike, during the analyst call claimed that the company was profitable. Om Malik estimated the revenue to amount $100 million in 2006. It is widely speculated that Microsoft would be paying around $800 million -$1 billion for the acquisition. Once approved, all of the 320 employees of Tellme will become Microsoft employees joining Jeff Raikes team at MountainView, California.

Jeff mentioned four key areas that this acquisition will add value:

a) Software as a Service: Tellme's successful experience in hosted software platform will give Microsoft access to the competencies to launch SaaS a much bigger scale. Saying so, there were other means to acquire the expertise cheaper and with more flexibility and depth.

b) Unified communication: Jeff mentioned the use of hosted voice-enabled customer service solutions that complement Microsoft's existing unified communications offerings. The value proposition is compelling. I find it hard to understand the need to own a application developer when customised apps could have been OEMed. It doesn't make sense to me unless Microsoft launches voice-enabled UC products in 2007.

c) Roadmap for speech solutions: It is said that with this acquisition, developers and partners will be able to build new speech based solutions on a scalable, standards-based voice-enabled applications platform. This is plausible, yet I see areas of overlap with what Microsoft currently offers. Also, there might be a conflict of interest between Microsoft and its ISVs on the usage of this specific application platform.

d) Access to mobile search technology: Tellme technology will allow voice user interfaces in existing Microsoft products to search services on mobile phones that integrate with Live search on mobile offerings. This capability, if robust, could prove to be a jackpot for Microsoft. The key challenges for Microsoft will be to establish the key relationships with operators. It cannot be emphasised enough the lack of sustainable/growing revenue streams for operators, definitely in Europe. Most of network advancements is taking place on the back of future earnings potential or to be on par with competition. This is constantly raising the bar, also making the services costlier. Mobile search technology would offer another offering, that if successful could create a two-dimensional sustainable and growing revenue streams-

1. from the users-for paid search
2. from the advertisers

Use of speech technology to interface mobile search is, what I think is a brain-wave. Not suprising then that Google was rumoured to be in take-over talks, something that helped Tellme push the price, but also something that gave Microsoft an opportunity to beat them to the post. Overall, an interesting move, one that holds a future. But it needs a lot of hard work, right strategy and hope that customers will buy