Natural MicroSystems (Nasdaq: NMSS) VP Marketing Allen P. Carney came to Israel to oversee the final stages of setting up the company’s local sales office. Natural MicroSystems (NMS) operates in several fields, including “voice over broadband”, CRM (customer relations management), cable, wireless broadband connections, IP network management, and voice portals.
Two weeks ago, NMS bought Mobilee of Israel for $15 million, and the company’s staff of 28 became full-time NMS employees, thereby indirectly establishing NMS’s Israeli development center.
“Globes”: Is the US or Europe the leader in voice portals?
Carney: “I think the US is the leader in voice portals, at least at the speeds needed for experimental products to become commercial services. There are many venture capital funds seeking to invest in the field and examining the business models for the services.”
“There are already some functioning services, such as TellMe, BeVocal and even Yahoo! (Nasdaq: YHOO), and I think we’ll soon see MSN and AOL (Nasdaq: AOL) offering their own voice portal services. There’s also a tendency to test services that can offer telephone access for internal company databases, so that a travelling sales agent can check inventories while visiting customers. Although the US is currently the leader, I think the focus in the future will be in the Far East, where Internet access to information by typing is much more complicated, due to the structure of the region’s written languages.”
“Our customers in the voice services market are actually the product developers for the end user customers. Our relations with Israel are reciprocal. For example, we have an agreement with Comverse (Nasdaq: CMVT), under which our products are integrated with their offerings. We also signed an agreement with Surf to jointly develop a software-based modem.”
What does the Mobilee acquisition provide for you?
“The Mobilee acquisition is intended to supplement our development department, so we can offer our customers a comprehensive hardware-software solution in a single product, while leaving the customer the option to adapt the product to his own customers’ needs. The development principle is to build a mechanism for handling voice combined with an underlying API (application program interface) layer in which relevant geographical and linguistic adaptations can be made without altering the voice identification mechanism itself.”
Even though there has been a lot of talk about voice identification for many years, it has not had much success from an economic standpoint. With whom are you cooperating, and who are your competitors in the voice portal field?
“Companies like Royal Philips Electronics (NYSE: PHI; Amsterdam: PHI), IBM (NYSE: IBM), Nuance Communications (Nasdaq: NUAN), and SpeechWorks International (Nasdaq: SPWX) provide toolkits that we don’t and won’t. There are also companies in Japan and China that are developing similar products, which are already being sold and marketed. However, it’s not clear if they’re making money all along the food chain.”
“Our direct competitors are Intel (Nasdaq: INTL) (after acquiring Israeli company Dialogic, G.N.) and AudioCodes (Nasdaq: AUDC). We have a clear edge over them, in that our price/output ratio is 5-10 times better than theirs.”
However, while Intel can be affected by the fall in demand for PCs, cutting its share price, the cellular sector, in which voice portals operate, is only getting stronger. Nevertheless, we’re seeing the share prices of companies in the sector nose-diving, and you also went into the red the last quarter.
“We’ve been affected by the general telecom market slowdown. Our customers are precisely those companies that have published unpleasant financial reports. Before coming to Israel, I heard that Cisco (Nasdaq: CSCO) is planning to lay off more workers, and they’re one of our biggest customers. Because we’re OEM suppliers, we’re directly dependent on the performance and financing of publicly-listed telecoms, and when they’re hurting, so are we.”
Nevertheless, you aren’t giving up on voice over IP and voice portals. Growth in the former field is slower than forecast, and even you admit that the business model for the latter is still uncertain.
“We’re indeed looking for new revenue-generating business models. If you ask yourself what the causes for the slowdown are, you’ll see that there were great expectations for the CLECs’ success, and, ultimately, a price war developed, expressed in reduced prices that reached a uniform level. This forced the providers to find new services that would provide an attraction, other than price, for customers.”
“This is also our perspective for the future. We intend to provide some of these services to the communications providers – so, there’s definitely a market for our products. We won’t change our focus on these matters. The time-frame for marketing the products might be extended, but it will happen, it will definitely happen, especially for voice over broadband, it’s only a matter of when.”
What about Europe? Broadband hasn’t had a breakthrough there either, but the communications crisis hasn’t reached the scale seen in the US.
“Our strategy was to sell products to 300 leading communications companies worldwide. If you total the revenues of the 25 largest companies in the sector, you’ll see they comprise 80% of the market. European companies on the list include Ericsson (Nasdaq: ERICY), Nokia (NYSE: NOK), Siemens (NYSE: SI; XETRA: SIE), and Alcatel (NYSE: ALA; Nasdaq: ALAO). There’s also Comverse in Israel. We’ve concentrated on these 25 companies in the past few years, and along with this change we’ll also focus more on Europe. The reason for the opening of our development office in Israel is to be closer to the European market, especially as it will be under the responsibility of our European office.”
Will the Floware Wireless Systems (Nasdaq: FLRE)-BreezeCOM (Nasdaq: BRZE) merger increase or decrease their orders from you?
“We spoke with Floware, and were told that the merger will increase their chance of success. The merger creates a company with a wider consumer product line. Our acquisitions of Mobilee and ILL also expands our product line, and we’ll continue (making) acquisitions. Although the number of customers appears to be small, in fact their purchasing needs for products doesn’t decrease, but grows. The consolidation shouldn’t hurt us either directly or indirectly.”
What are your plans for Israel?
“Israel is a place to find both partners and customers. In addition to our relations with Comverse, which are mainly handled in the US, we wanted to get closer to them and other customers in the area, including customers with whom we’ve already conducted business, including the RAD Group, Floware, TDSoft, and others. During my few days here, I met with a number of start-ups that may become partners down the road, as well as with representatives of cellular operator Partner Communications (Nasdaq: PTNR), which is interested in our technology.”
Published by Israel's Business Arena on 7 May 2001