Should Apple Make Nuance an Offer They Can’t Refuse?

Siri, Do you use Nuance technology?

Siri:  “I could tell you, but I would have to kill you.”

Apple didn’t utter Nuance’s name during the iPhone 4S event and Nuance isn’t saying squat.  That said, it is a known fact that Nuance provided the speech recognition engine for Siri before its 2010 acquisition by Apple. Assuming that integrating Siri into iOS was a higher priority that duplicating Nuance’s capabilities, it’s safe to assume that Siri still uses Nuance’s technology. Will that remain the case over the long haul is to be determined. Before we explore that, let’s review a quick primer on Nuance and Siri (Motley Fool):

Both born out of the prestigious SRI International technology R&D center in Menlo Park, Calif., they serve different parts of the spectrum in which your verbal intent is translated into action.

For example, you say, “Book me a table for two at Il Fornaio in Palo Alto at 6 p.m. tonight.”

Nuance would perform speech recognition and parse out every sound in that phrase. It would map sounds into syllables and syllables into words. This is a non-trivial task, and Nuance does it extremely well (so well the company has a market cap of more than $6 billion today). It would then present those sounds as transcriptions. But it ends there. It does not understand those transcriptions.

Siri is far better at understanding. It’s a gifted natural-language AI technology that knows the myriad of ways people express intent. Siri knows that by “book” you don’t mean a paperback novel but the action to “reserve” a table. It adds a deep layer of intelligence on top of Nuance and helps turn your spoken intent into action. It can go right to OpenTable and reserve a table for you. With one verbal command, you can skip the thumb typing and avoid the three Web screens to complete your task.

Vladimir Sejnoha, chief technical officer of Nuance, gives us some additional insight:

It’s has been a long, hard slog for speech to become a core user interface technology. It took a good thirty years, from the late 60s to the late 90s for speech recognition—the ability to turn spoken words into text—to become practical. “Speech recognition is not completely solved,” says Sejnoha. “We have made great strides over the generations and the environment has changed in our favor. We now have connected systems that can send data through the clouds and update the speech models on devices.”

Recognition alone is a necessary but hardly sufficient tool for building a speech interface. For years, speech input systems have let users do little—sometimes nothing—more than speak menu commands. This made speech very useful in situations were hands-free operation was desirable or necessary, but left speech as a poor second choice where point-and-click or touch controls were available.

The big change embodied by Siri is the marriage of speech recognition with advanced natural language processing. The artificial intelligence, which required both advances in the underlying algorithms and leaps in processing power both on mobile devices and the servers that share the workload, allows software to understand not just words but the intentions behind them. “Set up an appointment with Scott Forstall for 3 pm next Wednesday” requires a program to integrate calendar, contact list, and email apps, create and send and invitation, and come back with an appropriate spoken response.

The initial response after the iPhone 4S event was that Apple had let down the world.  The new phone didn’t look like slick phones on all of the rumor sites. It didn’t have a larger screen. It didn’t support 4G.  It didn’t support NFC. In other words, it wasn’t Android enough.  More importantly, it wasn’t named right. The world wanted an iPhone 5 and Apple had given us an iPhone 4S.  Clearly Tim Cook didn’t have Steve Jobs’ magic and the stock tanked.

The next day Steve Jobs passed away. As the tributes continued non-stop for the next week, the iPhone 4S disappointment changed to anticipation.  Some people wanted to buy the last iPhone that Steve Jobs was associated with, while others had become enamored with Siri. The iPhone 4S would go on to sell 4 million units in the first weekend easily surpassing the iPhone 4’s first weekend record of 1.7million units.

Siri clearly differentiates iPhone from any phone on the planet.  Interestingly, unlike adding 4G, NFC or any other features highlighted on the rumor sites – it will be years before the competition can add equivalent Siri-like capabilities.  Once again Apple did the Henry Ford thing – they didn’t give us a faster horse.

Gary Morgenthaler, former Siri board member, talks about Apple’s Siri speech-recognition software on Bloomberg West:

Morgenthalar says that Siri is fundamental new technology.  It is the beginning of the 21st century for human computer communications.  If it is truly that – Apple should have protections out of the wazoo on this technology. Siri is Apple owned and extremely well patented, but why not make a play for Nuance before Google or Microsoft makes a sweetheart offer?

The first objection is that Nuance has an 8 Billion dollar market cap and Apple has never made an acquisition of that size.  Secondly, Nuance is in many businesses like Medical transcriptions that Apple has little interest in.  These are valid objections.  However, Nuance is known as best in class and has a broad patent portfolio. An acquisition could be worth it just to keep the technology out of the bad guys hands.  Apple could spin off the business units that it wasn’t interested in.

Saying that, Nuance appears to have no interest in being acquired.  A few weeks ago they spent $100 million to acquire a text entry company called Swype.  Last week, the company raised $600 million to buy back shares and for future acquisitions.   It seems as though their goal is to be the Switzerland of voice recognition and build deep relationships with all players.  It has existing relationships with Motorola, Research in Motion and others in the mobile industry.

ARM Holdings is probably one of Apple’s most strategic suppliers and they work with all of Apple’s competitors. So, Nuance would apparently be no different. Personally, I would be paranoid that Google or Microsoft would try to throw a monkey wrench in the plan. I am confident that Apple has thought through all scenarios and has multiple plans with contingencies in place. Regardless of how it plays out these are exciting times for Apple and Nuance. Thankfully, Apple didn’t just give us an Android clone with a 5 moniker.

Disclosure: Long Apple and Nuance.

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