What the Voice-Recognition Industry Needs Most

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I'm a big believer that voice-recognition technology will play an increasingly prominent role in how we interact with technology -- so much that I've made a bet on Nuance Communications (NAS: NUAN) accordingly as the clear technological leader in the field.

So when the CEO of a small voice-recognition software company, Datria, reached out to me for a conversation, I jumped at the chance. Datria is a small private player with about 50 employees, and it resells Nuance's speech engine while also counting software giant SAP (NYS: SAP) as an investor.

Jim Greenwell has been CEO for 12 years, and he provided valuable insight into the industry at large, as well as what trends users and investors should be on the lookout for.

Who will rally the troops?
If there's one primary takeaway from our conversation, it's that the voice-recognition industry needs leadership more than anything. I did just call Nuance the clear leader, but let me offer some additional context.

There are two primary layers to serving up voice-recognition: the speech engine and the application software that taps into it. And as Greenwell says, "Nuance clearly has the best [speech] engine out there." He notes that it works in more than 60 languages and has underlying linguistic algorithms to recognize small "phonetic sound bites," which vary greatly between languages.

Datria is one of many voice application software providers that taps into the engine and puts it to use. That being said, Datria uses a plug-and-play model, so it could theoretically swap out the engine if needed, but Datria has been reselling Nuance's engine for 14 years.

Please don't make me call the cable company
It's this application software layer that can cause a negative perception of voice technology in general. Let's say you call up one of your various service providers, be it your cable provider, discount broker, or favorite airline. Many companies use automated voice now, but sometimes those systems come up short on actually interpreting what you mean.

Many of those companies license Nuance's engine, and the recognition side works great, but if the application (which is frequently built in-house) isn't programmed to interpret all the ways you can say "yes," then it might not realize that "absolutely" means the same thing. This leaves many users with an impression that voice-recognition technology is broken, when it's really the application software layer that needs improvement.

That disjointed experience is what the industry needs to address.

Maybe the big boys can help
Enter Apple (NAS: AAPL) . The Mac maker is doing wonders in terms of consumer awareness with Siri, which serves as the app software layer while Nuance's engine runs on the back end. Siri used Vlingo's engine in the beginning but eventually switched to Nuance, while Nuance has since acquired Vlingo.

On the other hand, Google (NAS: GOOG) has Voice Actions built into Android and is likely to be working on a Google Assistant to boot. In contrast, Big G builds its own speech engine in-house, with the help of Nuance co-founder Mike Cohen leading its speech technologies group.

Microsoft (NAS: MSFT) also has a back-end speech engine that competes with Nuance's that it built after purchasing Tellme five years ago, but this isn't an area where Mr. Softy has dedicated a lot of attention.

Nuance has different strategic approaches to its different markets. The health-care and medical-transcription market is one segment where it builds the app software running on its engine, which is important as its largest segment (38% of revenue last quarter). On the mobile and consumer side, Nuance also has its popular Dragon suite of apps.

Whereas on the enterprise side, which barely put up any growth last quarter, Nuance just sells its engine while leaving the app software layer to third parties such as Datria.

Keyboard and mice are so last century
Greenwell spends a lot of time evangelizing for the benefits of voice recognition and debating with naysayers, whose perceptions have been skewed by limited exposure to quality applications. This is where the industry needs leadership: driving awareness to uncover more useful applications. Greenwell is mostly indifferent as to where this leadership could come from -- be it Apple, Google, Microsoft, or Nuance.

He even envisions a corporate virtual assistant that could do wonders for the enterprise. While Siri helps you manage your personal affairs and taps into public content sources such as Yelp or Wolfram Alpha, imagine an enterprise doppelganger that can access HR files and proprietary corporate databases through voice interaction, complete with advanced biometric security (which Nuance already offers) to prevent unauthorized access.

One of the biggest challenges is uncovering all the niche uses of voice technology and subsequently monetizing them, which just makes leadership in awareness that much more crucial. There are plenty of ways to boost productivity to increasingly mobile workforces with voice, and Greenwell says it's "impractical to perpetuate the legacy UI of keyboards and mice" for mobile workers.

A twofer
Enterprise voice applications are a huge market that Datria is tapping into with help from Nuance. It's further evidence of the consumerization of IT and the mobile revolution, which are two of the largest technological shifts in generations -- two trends that investors won't want to miss.

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At the time this article was published Fool contributorEvan Niuhas a synthetic long options position in Nuance Communications and owns shares of Apple and Nuance Communications, but he holds no other position in any company mentioned. Check out hisholdings and short bio. The Motley Fool owns shares of Microsoft, Apple, and Google.Motley Fool newsletter serviceshave recommended buying shares of Apple, Google, Microsoft, and Nuance Communications and creating bull call spread positions in Apple and Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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