Already a Bloomberg.com user?
Sign in with the same account.
Nuance Communications Inc
Walt Disney Co/The
FBR & Co
In 2009, Nuance Communications (NUAN), one of the largest players in voice recognition software, licensed its technology for use in a small mobile app. That app was Siri, which Apple (AAPL) bought in 2010 and turned into a major feature in the latest iPhone, allowing users to speak all types of questions and get answers from a virtual personal assistant. Although the terms of Apple’s arrangement aren’t public and neither side will share details, it was clearly a big win for Burlington (Mass.)-based Nuance, which now powers voice recognition on millions of devices.
That success has given Nuance, which also sells its voice recognition software to health-care and financial companies and is known for being a hard bargainer, a new respect for the value of freebies. In September, Nuance started offering free tools to mobile developers for building applications using Nuance’s speech recognition software. That’s triggered a wave of new apps where users can shop, search, play games, or otherwise use their phones through voice alone. “It’s a way to seed the market with our technology,” says Matt Revis, a vice president at Nuance Mobile, which makes money when appmakers upgrade to plans that offer customer service or more features. Siri is an example of “the types of situations we are looking to develop: smaller companies using us becoming big.”
Until the new rules kicked in, Nuance charged mobile developers about a penny each time the users of their apps tapped into voice recognition features. Startups had to charge customers a per-use fee—a very unpopular model—or cover the tab on their own. “If your app was too popular, the costs would explode,” says entrepreneur Alexander Marktl, whose startup, Sonico Mobile, makes a foreign-language translation app. “As a small app developer, it’s too dangerous.” And for iPhone devel-opers in particular, there were few other options. Google (GOOG), for instance, makes high-quality voice recognition software available to appmakers for free, but it only supports apps built for its Android operating system.
One beneficiary of Nuance’s change in strategy is Sonico. The Austrian startup’s iTranslate Voice, which made its debut on May 10, is the seventh-most popular paid app in Apple’s App Store, ahead of hit games such as Walt Disney’s (DIS)Where’s My Water? and Rovio’s Angry Birds. A user can say a sentence in one language, and the software repeats the phrase in any one of 30 other languages. The 99¢ app has been downloaded more than 500,000 times. Sonico selected Nuance’s most expensive service plan, but pays a flat rate for every app that’s downloaded instead of a per-use fee. Nuance’s new rates “made it possible to sell apps for cheap,” says Marktl.
Sonico’s app is one of about 140 new consumer mobile apps created by third-party developers that make use of Nuance technology, which also powers Amazon.com’s (AMZN) Price Check app, a way for shoppers to check online prices while browsing in physical stores. The app Voice Actions, made by Pannous, taps Nuance software to let users set alarms and reminders, get news, and do image searches. Revis says thousands more Nuance-powered apps are in the pipeline. Daniel Ives, a managing director at investment bank FBR Capital Markets (FBRC), estimates that Nuance’s revenue from mobile software will double, from about $250 million today to $500 million, over the next three to four years.
Globally, sales of voice recognition software for wireless devices should reach $21.3 billion by 2018, up from $3.5 billion last year, according to tech analysts WinterGreen Research. “Since the launch of Siri, the industry has had a lot more interest in speech,” says Revis.
The bottom line: More Siri-like smartphone hits could help Nuance’s mobile-software revenue double, to $500 million, within three to four years.