Nuance Spinout Cerence Vies With Tech Giants in Voice-AI for Auto
A new mobility company, Cerence, is making its public-market debut Wednesday, and its first CEO, Sanjay Dhawan, says he’s been meeting with more than 50 investors in recent weeks to talk up its prospects.
Cerence is a spinout from pioneering speech recognition company Nuance Communications (NASDAQ: NUAN), and it will carry on the work of Nuance’s former automotive division—a longtime player in the hotly competitive drive to equip vehicles to take full advantage of voice interactivity, artificial intelligence, and mobile Internet connections.
Burlington, MA-based Cerence will continue Nuance’s development of digital dashboard features for vehicles, including voice-activated controls that allow drivers to do things like make calls, ask for directions, and change the radio station while keeping their hands on the wheel.
But artificial intelligence, sensors, and in-cabin cameras have opened up a much broader range of services from Cerence, such as tailored responses to individual drivers, and mood detection based on drivers’ facial expressions, gestures, and the pitch of their voices.
Cerence and Nuance will start finding out this week how the public markets will rate their value as two separate entities. Nuance is retaining its two other top-performing divisions, which create voice-enhanced software systems tailored for specific industries such as healthcare. Trading in Cerence common stock began Wednesday (Oct. 2), the day after Nuance shareholders on Tuesday received one share of the new public company for every eight shares they held in the parent company by a cutoff date of September 17.
Dhawan tells Xconomy he’s been talking to dozens of current investors, as well as potential new Cerence investors, in a road show to make his case for a healthy market launch for the freshly minted public company, which is now trading on the Nasdaq exchange under the symbol “CRNC.” The spinoff made its trading debut without the benchmark price that would result when companies price their shares in an IPO. Cerence shares opened at $17.19 Wednesday. Nuance shares, which closed at $16.45 Tuesday, opened at $14.10—a price drop Nuance had expected for its first day as a company without its former automotive unit.
Cerence (NASDAQ: CRNC) will be competing for a slice of an automotive voice and speech recognition software market that market intelligence firm Tractica projects will grow to $4.5 billion by 2025. Its rivals include the same big tech companies that Nuance had to take on when it vied for a role in the consumer device industry earlier in this decade. (More on that to come.)
One question Dhawan says he’s been asked more than once in his discussions with investors: How will Cerence defend its turf against well-heeled tech giants including Google, (NASDAQ: GOOG) Amazon (NASDAQ: AMZN), and Apple, (NASDAQ: AAPL), which are piling into the automotive sector with interactive voice-based systems of their own, such as Android Auto, Apple CarPlay, and Amazon’s Alexa Auto?
“I think it’s a fair question,’’ Dhawan says. He has no dearth of answers when it comes to the strength of the new company itself, which claims steady revenue growth and a 20-year track record of working with automakers and their top suppliers. Cerence, which has 1,300 employees, expects to record revenue above $300 million for its fiscal year 2019.
But one of Dhawan’s principal arguments is that the very might of the big tech companies may work against them when automakers consider which voice-AI providers to admit deeply into the software infrastructure of their Web-connected vehicles, or allow access to their sensors and the data they generate.
“That is highly valuable data,’’ Dhawan says. Money will be made by mining that data to create personalized services for drivers and riders, and to link them to a burgeoning mobility ecosystem of online merchants and service providers. These range from roadside mechanics to car insurance companies and sellers of streaming videos to keep the kids amused in the backseat.
When Dhawan talked with automakers after accepting the leadership of Cerence, he learned that they’re concerned they will lose the monetization of their vehicle data unless they choose their technology partners carefully.
“They want to basically own and control the data to the car’’ and the customer’s experience, says Dhawan, who previously served as chief technology officer and president of connected services at Harman International, a Samsung subsidiary that has partnered with Nuance’s then-automotive unit in creating on-board digital systems for automakers.
Dhawan is betting that automakers will want to keep Cerence in the mix as an independent, neutral partner providing “cognitive assistance’’ software, rather than possibly ceding control of their digital features and data to a large tech company. As a pure-play automotive software company, Cerence will continue to help auto manufacturers build onboard conversational AI systems that are customized to enhance a carmaker’s brand and strengthen its bond with drivers and vehicle owners.
Assessing antitrust concerns
Cerence is emerging just as Congress and the US Department of Justice are exploring the role of giant tech companies—including Google, Amazon, and Apple, as well as Facebook—in the overall US business marketplace. Some lawmakers are considering antitrust measures, including the breakup of some of these companies, due to fears that their size, massive user bases, and financial might could be squelching smaller competitors trying to eke out a reasonable market share—from startups to legacy companies across a broad range of industries.
Congress has asked 80 unnamed companies to contribute confidential feedback on how big tech affects their opportunities, the New York Times reported.
Neither Nuance nor Cerence has led a public outcry for antitrust legislation. In fact, Nuance’s business to date includes a long record of partnerships with very large companies who were also at times its competitors. But a look at the history of Nuance and its automotive spinoff makes a good case study for those who want to ponder the influence of big tech companies on the American business environment. These giant firms all began with innovative but limited services, such as online book sales or search engines. But they have now sprawled horizontally across many different industries, including education, entertainment, cloud computing, device operating systems, delivery, AI chips, advertising, and transportation.
Nuance had already faced this formidable array of competitors before—outside of the auto industry, in a different business arena, where it was unable to sustain a niche.
Nuance and the mobile device market
Burlington, MA-based Nuance, whose origins as a business date back to 1992, was long known for its Dragon Naturally Speaking dictation software. The voice-to-text transcription applications were a boon for hunt-and-peck typists, and those whose hands ached from repetitive strain injury. Nuance later adapted the software for mobile devices.
The rise of smartphones and other mobile devices seemed to open new business avenues for Nuance, one of the pioneer developers of mainstream speech recognition software. Nuance decided not to create a mobile device of its own, but instead resolved to become the behind-the-scenes provider of voice interaction technology for makers of smartphones and the growing number of other connected devices collectively dubbed the Internet of Things, according to Richard Mack, a longtime Nuance staffer who has been appointed chief marketing officer for Cerence.
The company provided technology to power Siri, the interactive voice assistant integrated by Apple in 2011 as it introduced the iPhone 4S. Nuance voice assistant technology was also used in devices including smart TVs, automated coffee makers, and certain cars, the New York Times reported in 2012.
But Nuance wasn’t able to generate a thriving business as a B2B supplier of built-in voice interactivity technology for mobile handsets and IoT device makers. “Those landscapes changed dramatically,” converging on a handful of companies, Mack says.
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