Tellme, a 320-employee firm that builds and hosts customized voice-activated services, will be incorporated into the Microsoft Business Division, which is responsible for products such as Office and Exchange, and Microsoft's emerging unified communications portfolio. As with many other acquisitions, the terms of the acquisition were not made public, but reports put it in the vicinity of US$1 billion, making it Microsoft's largest acquisition in at least four years. The deal is expected to close by the end of June 2007.

Tellme's Hosted Services

Tellme's customer service applications are used by large businesses, and the company also provides free voice-activated phone-based information services directly to consumers. The company, based in Mountain View, CA, claims that during 2006, voice-activated applications hosted on the company's interactive voice response (IVR) platform processed 10 billion "speech utterances" and that one third of the people in the United States used a Tellme application. The company's data centers host fee-based 411 directory assistance, package tracking, and a multitude of other forms of phone-based customer service applications on behalf of companies such as American Airlines, Cingular/AT&T, E*TRADE Financial, FedEx, Merrill Lynch, and Verizon.

Tellme's hosted voice platform will advance Microsoft's efforts to secure lines of business that produce ongoing service revenue from corporate customers. Over the past few years, Microsoft has attempted to bootstrap services businesses through both internal efforts—such as managed services pilots at Energizer Holdings and XL Capital—as well as through acquisitions, such as PlaceWare (now called Live Meeting) and FrontBridge (now called Exchange Hosted Services). Tellme gives Microsoft a proven services business with reportedly US$100 million annual revenues in the call-center application market, an area where Microsoft has only a small presence today.

As Microsoft enters into the voice-mail market with Exchange Server 2007 and steadily displaces functions traditionally handled by private branch exchanges (PBXs) with each new version of its Communications Server software, it is not surprising that Microsoft would want to move up the stack into the call center application market. Most of Tellme's existing customers are large companies in North America, so Microsoft will have an opportunity to exploit its worldwide reach and localization expertise to take Tellme technology and services global, as well as the opportunity to make the capabilities more relevant and affordable to midsize and small businesses.

However, Tellme presents a significant technical and communications challenge: it's not clear how Microsoft will merge Tellme with Microsoft's existing Speech Server platform (which is being rolled into Communications Server 2007), and what voice APIs developers should use in the interim.

Tellme's Consumer Services

In addition to hosting voice applications on behalf of large customers, Tellme also operates its own phone-based information services for consumers.

Since 2000, Tellme has operated 800-555-TELL, a toll-free phone service that allows callers to speak commands into any phone and hear various types of information, including sports scores, stock quotes, news headlines, movie show times, weather, local business lookup, and driving directions. Opportunities for Microsoft include selling advertisements on 800-555-TELL and broadening the user base through promotion and tailoring for international markets.

Tellme also offers two business lookup services, both currently in beta, that allow mobile phone users to find a business by name or category, view a map, obtain step-by-step directions, and call the business. The first, called Tellme by Text, allows users to submit a query by sending Short Message Service (SMS) messages. However, this service largely overlaps with Windows Live Search for mobile, which also allows SMS-based business lookup and other types of queries. The second, Tellme by Mobile, provides something Windows Live Search for mobile can't do today: it allows mobile users to submit lookup queries via voice input. This is an important capability that could help Microsoft compete with Google in the mobile arena.

The current implementation of Tellme by Mobile requires users to download and install a Java application on their mobile devices—something that users are often reluctant to do and that some North American carriers don't even allow. Microsoft has the opportunity to build the Tellme by Mobile capabilities into its Windows Mobile platform, making it more ubiquitous and potentially increasing revenue though licensing arrangements with wireless carriers, as well as by selling advertisements, perhaps tailored to users' geographic location.

Finally, Tellme might have technology that Microsoft could use to add or improve voice-recognition in many existing products, including Windows Vista, Exchange 2007, Communications Server and its associated Communicator client, and the Windows for Automotive platform.

Additional information on Tellme is available at www.tellme.com.