Microsoft’s next battleground – wireless

I am sure you have seen the news all over the web and Techmeme about Microsoft's purchase of TellMe, which is rumored to be around $800mm.  As you can see from this Microsoft press release, the big opportunity is for Microsoft to use the TellMe voice-driven user interface as a key component for mobile handsets:

We’ve made great strides in speech technologies, but have only scratched the surface of what is possible,” said Jeff Raikes, president of the Microsoft Business Division. “The acquisition of Tellme will bolster Microsoft’s existing speech capabilities, bringing both immediate and longer-term value to our customers and partners.”

“Tellme was founded with the idea that anyone should be able to simply say what they want and get it from any device, starting with the phone,” said Mike McCue, co-founder and CEO of Tellme. “Now, with Microsoft, we’ll be able to extend that vision to millions of businesses and consumers around the world.”

I remember when I started in the VC world over 11 years ago, the question we always had to ask ourselves before we made an investment was "what is Microsoft doing or going to do?"  As I reflect on the last decade, I never really did think that as an investor in software and the Internet that the question would become almost irrelevant and would change to "what is Google doing or going to do?"  Given all of the discussion about Microsoft being dead, I must say that while they are still a distant third in the search space, they did make a brilliant move in acquiring TellMe.  While most of the revenue does come from TellMe's hosted speech applications for customer service, the big value in the long run will be Microsoft's ability to incorporate TellMe's mobile search and voice-driven search through the mobile handset.  In other words, it seems that while Microsoft is not conceding to Google in search, that it does recognize that the mobile opportunity is potentially much larger and that this acquisition will clearly give it a big lead in the mobile space.  Think about it - when you leave home, you grab your keys, wallet, and cell phone.  The opportunity to reach and market to this third screen is huge and just in the first inning.

Even Tim Berner's Lee in this week's Economist (sorry, password required) highlights the next wave on the Internet being around mobile:

Although he is somewhat sceptical of the hype around Web 2.0, Sir Tim is excited by three other areas of the web's development: its spread to millions of new users via mobile devices, the growing interest in the technology's social and political impact and the “semantic” web, in which information is labelled so that it makes sense to machines as well as people. “If you look at the number of internet-capable mobile phones, PDAs and so on, they are rapidly outnumbering the things we think of as computers,” he says. “As the price of these devices falls, large parts of the developing world will get web access. When you have a large mass of new users, you will get many new applications, written by people with other needs.”

The number of internet users reached 1 billion in 2005. But although about 70% of the population now has access to the internet in North America, the figure is just 11% in Asia and less than 4% in Africa. To the jaundiced observer who remembers the disappointment of WAP, the first attempt to bring the internet to mobile phones, Sir Tim's enthusiasm for mobile-internet access may sound like déjà vu. But he insists that there are crucial differences. “WAP was not based on standard internet protocols, there was no competition for browsers, and operators had a stranglehold on access,” he says.

Maybe with this acquisition and Microsoft's commitment to mobile, I and other VCs will find ourselves once again asking the question, "what is MIcrosoft doing or going to do?"

As an FYI, there should be more to come on this topic as I will be at the Microsoft VC Summit tomorrow learning more about their plans for the next year.
 

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