Nuance’s Vlingo Purchase Seen As Survival Move Against Apple, Google

12/21/11Follow @xconomy

It’s hard to believe that two companies that have spent the last three years suing each other really mean it when they say that together they will be stronger. I’m talking about speech recognition competitors Cambridge, MA-based Vlingo and Burlington, MA-based Nuance Communications.

The two software makers announced Tuesday that Nuance would acquire the younger, smaller Vlingo. It came as a shock, just months after Cambridge, MA-based Vlingo hit Nuance (NASDAQ: NUAN) with a lawsuit that included allegations like commercial bribery and unfair competition.

On the surface it looks like a potential last resort option for the smaller startup after years of costly legal battles (covering patent infringement, false advertising, and more). But the marketing machines of Apple and Google and their newest voice-controlled smartphones, such as the iPhone 4S, could mean a host of new threats in the speech software space, causing the formerly embattled companies to join forces to survive, a number of Boston mobile experts have said.

All pending lawsuits between the companies are now “stayed,” Vlingo CEO Dave Grannan told me, meaning that they’ll be put in limbo until the acquisition closes, at which point they’ll be officially dismissed. Grannan has previously said he’d be open to an acquisition by Nuance if the terms were favorable. In a phone interview Tuesday afternoon, Grannan declined to discuss how much Nuance paid for Vlingo, but did want to talk “the timing of the transaction.”

The shotgun marriage of Nuance and Vlingo comes two months after Apple introduced its iPhone 4S with the built-in voice-controlled virtual assistant Siri, which can handle everything from searching for weather information to calling a cab.

“That has caused just a legion of new competitors to enter the space,” Grannan said. His company makes voice-recognition software that exists as a standalone application sold in the Google Android, Blackberry, and Apple iTunes app stores, and built into devices like Samsung mobile phones.

Facing other voice recognition startups doesn’t seem as menacing, but confronting one major Internet giant does. “It’s more scary for us that Google is going to double down its investment to try to catch Apple’s Siri,” Grannan said. “Both sides realized that we’ve long since passed the value of competing. If we’re going to survive in this marketplace we need to cooperate.”

Mountain View, CA-based Google (NASDAQ: GOOG) recently acquired Clever Sense, the maker of a mobile assistant app called Alfred that makes recommendations on nearby bars and restaurants. The purchase has been pegged as part of Google’s strategy to take its share of the voice-enabled virtual assistant space.

“Rather than spend the next year in legal battles, [Nuance and Vlingo] decided to join forces on this,” said Mark Lowenstein, managing director for the consulting firm Mobile Ecosystem. The acquisition allows Vlingo, which has focused entirely on mobile phones, to take its voice-controlled applications to other consumer devices, as well as new sectors such as healthcare.

Another Boston mobile startup’s scuffles with Google have served as a warning bell for Vlingo as well. Boston-based Skyhook Wireless, a maker of location-finding technology for mobile phones, has alleged that Google intentionally interfered with customer deals it inked with Motorola and Samsung for their Android devices. Skyhook alleges that Google used its muscle to get its own location-finding technology into Android phones over Skyhook’s, and is also suing Google for patent infringement.

Grannan expressed concern that Google could potentially keep it out of the Android platform. “We’ve never experienced anything like that, but that’s a real threat that exists,” he said.

What does Skyhook think about Vlingo and Nuance? “As an industry player I’d rather see them join forces to fight off people like Google than fighting each other,” said CEO Ted Morgan. “Our business models are similar in that the technology is baked into devices as part of the manufacturing process. Whenever you do that you’re going to run into folks like Google and Apple that want the stack to themselves.”

“As a combined group with Nuance as a public company they’re going to be a lot stronger,” said Morgan

To drive the point home, Grannan used a World War I analogy. “France and Britain were skirmishing and bickering amongst one another until they realized that Germany was going to knock both of them off their feet.”

There’s one more intriguing aspect to the Nuance acquisition of Vlingo. For Vlingo co-founder and chief technology officer Mike Phillips, this is actually the second time he’s built a company that ended up as part of the Nuance family.

Phillips’ first speech recognition company, Speechworks, was acquired by Scansoft in 2003; Scansoft later acquired another company called Nuance and took that company’s name.

[Disclosure: Mike Phillips is the brother-in-law of Xconomy Boston editor Greg Huang. Mr. Huang was not involved in the planning, directing, reporting, or editing of this story.]

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