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March 14, 2007 9:50 AM

Tellme deal: Microsoft buying search leadership?

Posted by Brier Dudley

I wonder if Microsoft's purchase of Tellme Networks is the first of several acquisitions the company will make to improve its standing in the search market.

Tellme could help Microsoft in the next generation of search, using voice for hands-free searching, particularly on mobile devices.

Google's already exploring the blending of search and telephony with test products such as "Click-to-Call," but it trails Microsoft and Tellme in voice recognition, an area they've been researching since Google was a pipsqueak.

On the Tellme conference call this morning, I asked Business Division President Jeff Raikes whether Tellme signals the start of a round of search-related acquisitions. He said the company continues to look at potential acqusitions, but "we don't have any announcements" beyond Tellme.

Tellme co-founder Mike McCue said he's excited that Microsoft will make his company's voice recognition technology available to a billion consumers on all sorts of devices.

"This represents dial tone 2.0,'' he said. "Right now the phone has been relatively unchanged in a decades. The fact that you still pick it up today and you hear two tones meshed together as a dial tone and you have to enter a bunch of numbers to get something done to reach somebody. We think that's ... ripe for change.''

For example, "we love the idea of allowing people to simply pick up a phone, push a button and say 'find the nearest Starbucks' and get a map and driving direction to that location.''

Raikes emphasized that Tellme will complement the range of voice related products that Microsoft has and how the combination will create new opportunities for companies building on the platform.

In particular Tellme brings expertise in enterprise voice systems, such as the customer service systems used by American Express, Domino's Pizza and others. Raikes said Microsoft has done some work there but Tellme is the hands-down leader in that field.

McCue wouldn't provide Tellme revenue information but said the company processes about 2 billion calls a year "and we get paid for every call."

"They really need to have good strong interaction with the customers on the telephone and be able to satisfy coustomers requests, transaction requests, for example getting flight information," he said. "When you do that well, businesses are able to make their customers much more happy."

Voice will also increasingly be part of desktop software. Raikes said Microsoft is expecting that within 3 years, 300 million people "will be enabled to do click to call right within their applications." (I thought he said 300 million; later in the call he repeated the point and said 100 million Office users would have this capability within three years).

"We see tremendous potential because of the role that speech is gong to play as a natural interface,'' he said.

Raikes wouldn't comment on earlier reports that Microsoft is paying $800 million for Tellme. If that number is close, it seems like a material event that Microsoft has to disclose to investors.

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Gadgets and games | Fun stuff I've written about lately includes Apple's iPhone, Hewlett-Packard's HDX laptop and Microsoft's Halo3. Also on the radar are new digital video boxes such as the Tivo HD and the Vudu.