Congrats to TellMe if this is true.

It’s interesting how each of the big companies are building up their arsenal. This should allow Microsoft to do some very cool stuff. The question is, how cool will they go.

If its true I think its Microsoft trying to enter the back end automated voice recognition services space.

Wes, can you say anything more obvious. TellMe does X, if Microsoft buys them, it means Microsoft wants to do X. duh.

Any idea what the equity distribution is after $230M+ in funding ???

Wes, don’t be so sure. MS is know for making a lunch of such companies. :p

Microsoft never got it’s voice reco off it’s feet, congrats Tellme for pulling this off and I hope you show them how it’s done. I hope everyone makes some cash, not just the execs.

What will Microsoft do with them? Check out Apple, see what they’re doing.

As a former Tellme employee all I can say is I hope the deal nets more than $800M. Tellme has well north of 100M shares outstanding, if memory serves, and round $240M in funding, so a sale price of $800M will mean precious little pie for those of us who joined after 2001 and got peanuts for equity, but still bled for the company during many of its hurry-up projects for Fortune 100 customers. I know no one is feeling for me here, but if you read this, McCue, I hope you held out for $1B, at least — $1.5B would be … “awesome!”

Gern

Yeah Gern, TellUS (no pun intended, maybe just a little) how you really feel.

How does WSJ virtually always get first leaks from Google and Microsoft

#10 - that is a big scam underneath.

What is the proper way to spell “Tellme?” In the logo and on http://www.tellme.com, only the ‘T’ is capitalized. Yet, I keep seeing the CamelCase version.

from Om Maliks forum posted by a reader (William):

Further validation for voice hosted providers. TellMe has a great hosted IVR platform. Next voice acquisition will be in the hosted call center space. Considering that there are only few such providers and many large companies without such offerings the frenzy will begin. Companies such as Cisco, Avaya, Concerto, Genesys, Salesforce, SAP and Oracle are now forced to make these type of call center platform acquisitions. Even poor Nortel folks must be scratching their heads wondering how this acquisition will affect their recent joint venture with MSFT.
Though MSFT acquisition on the surface looks to be very focused on a few large TellMe type customers this is the tip of the iceberg. Yes, MSFT will look to use this technology for seach as well. But, ultimately what is an IVR? An IVR is used for self service and call routing. The huge market opportunity here is the call center market. Hats off to MSFT for beating Google and CSCO to the punch. Who is next?

*BeVocal (hosted IVR) - acquired by Nuance Feb ‘07 for $160M + up to $40M sales targets
*Telephony@Work (call center)-acquired by Oracle in June ‘06. Rumored price $90M-$100M
*Five9 - hosted call center technology (venture capital backed by Hummer Winblad
*Cosmocom - hosted call center technology (venture backed by Intel Capital, Marconi, TCV…)
*Angel.com - owned by MicroStrategy (Nasdaq: MSTR)

Maybe the later versions of “Windows Live Search for Mobile” (anyone know of a simple name?!) will feature TellMe IVR-Kinda technology. This is interesting especially Google has already patented the ‘Voice Search’.

This is a very large investment for a non profitable company as yet.

Say goodbye to the Java application in 5…4…3…

Another piece of voice technology gets bought and buried by Microsoft. If they’re lucky, their back end stuff will be integrated into Windows Mobile.

Michael, can you help on this deal!

I am an aspiring entrepreneur, and I am trying to figure out what a sale price like this means to a company.

If the sale price is at 800 million, how much of it goes to the founders/employees? Given that VCs have put in more than 200 million, and most are looking for a 10x return, will the founders get anything?

Thanks for your response,

Chris

Um … I guess you can’t avoid paying a large amount of money for anything if your are Microsoft. - Heh

- It would be like superman asking for help lifting a sofa or some other stupid analogy -

- Rb

I heard from a source inside TellMe that the valuation is slightly under the $800 million number.

Tellme made a LOT of noise in 2000 about “only hiring the best”, and “each new employee has to be better than the last..

I guess that didn’t work too well for them if they’re now selling a non profitable company for $800M 6 years later.

Regarding comment 12, it’s “Tellme” — just the “T” is capitalized.

Regarding comments 15 and 20, Tellme has been profitable for 2-3 years, perhaps a little longer. Not sure where you get the idea they are not profitable. They also had $40M+ in cash round early 2006, the last time I paid attention at an all-hands meeting, so the company was in very good financial condition.

I think one of the chief financial concerns for the company is the declining fee-based 411 market, of which Tellme handles something like 40% of the traffic. With that market in decline and no obvious way to implement and monetize advertising for the traffic when it is “free,” Tellme felt they needed a killer mobile application they could license to carriers and handset manufacturers. The result was Tellme by Mobile, which is, in fact, a very cool application, but we all know how low adoption rates are for J2ME applications, even when shipped on a handset. There remains Tellme’s voice application platform (arguably the best there is) and the many custom applications built for large corporations that are hosted on that platform.

But if you look at competing in the hosted IVR market it just doesn’t scale in terms of revenue growth in the way one would like to, say, enjoy an irrationally exuberant IPO (the last couple years I was at Tellme revenue was growing slowly but steadily toward $120M/year, and that was either their ‘06 or ‘07 goal). I think Tellme looked at realistic revenue trends, at the declining fee-based 411 market, at the possibilities offered by the new J2ME client and the existing IVR hosting business, and felt an acquisition was a better bet than an IPO, never mind the ever-present analyst interest in a Tellme IPO.

I also sensed fear in Tellme’s upper management to “open the books” for an IPO, when all the world would then know that Tellme is and might always be a hosted IVR company, and that promises of “Dialtone 2.0″ may never be realized. Don’t get me wrong here — Tellme has a solid opportunity and clear leadership in the hosted IVR market, but that opportunity is perhaps out of scale with the early enthusiasm and investment the company enjoyed (and investor patience was reportedly wearing a little thin, as was the patience of many stalwart employees, I can assure you).

In any case, that’s one former employee’s take on the situation, and I’m no analyst.

Gern

Gern: very thoughtful analysis - as someone who worked at a competitor.

a public competitor to Tellme is Upsnap..but with more features and a validated FREE model through Pay per call advertising

I few comments / answers to others:

Chris - how much did Tellme founders make?

We won’t really ever know for sure … but almost certainly little to nothing. Tellme had close to $250m in VC money invested in the dot com era. The liquidation preferences (the minimum the VC’s would get back from their investment) from that era would mean Tellme would need to be acquired or IPO for at least $1b and more likely around $2b before founders and employees would see anything.

The same thing happened with Bevocal, which was recently acquired by Nuance. That deal included stock (which went to the Bevocal VC’s) and goal-based incentives (which, if achieved, will go to the founders and employees). I be we’ll see an incentive-focused deal for Tellme founders and employees as well.

StartUpCrunch - Tellme was profitable.

Francis - I don’t know about that posting. After Bevocal and Tellme, the greater probability is that MS competitors such as Oracle and IBM will make plays for other hosted speech / IVR vendors.

The most recent analyst report on the space (from Forrester) identified Tellme, West Interactive, Convergys, Voxeo, AT&T, and Voxify as the leaders in speech hosting, in order of size. West was a $4b public company, 70% owned by the founders, that was recently bought out entirely and taken private by new owners. Convergys is a $3b+ public company. (FYI, speech / IVR hosting are just a small part of West/Convergys businesses as a whole. Thats why Tellme is worth just $800m but is larger in speech hosting.)

So Voxeo and Voxify are left on that list.

By size Voxeo is the next most likely target. Like Tellme Voxeo is profitable, has some big customers, and claims to have triple-digit yearly growth. On the other hand, unlike Tellme Voxeo is completely owned by management. Voxeo was born in the dot com era, but they claim to have bought their VC’s out several years ago. Without VC pressure - and if their growth rates are true - they probably won’t want to sell right now. Why sell at 7-8 times this years revenues if next years revenues will double?

Voxify is somewhat smaller than the others on the Forrester list. They don’t own their hosting infrastructure - they use others such as Convergys and Bevocal. They do however have their own great technology, applications and some big-name customers such as Continental airlines. They are VC backed and had a recent management change - the founder was removed from the board and replaced as CEO (Writing, let me introduce you to the wall). The pressure and value to sell seems obvious here. Their smaller size could make them very attractive and an easy acquisition for someone.

Gern - great insight. I’ve heard and seen much of the same. Tellme has great technology and customers, but as you said many Tellme employees have left in the last year. Their VC’s were getting tired of waiting for an exit. It seemed even the original founders we’re getting tired of waiting. I really, really hope they made some money on the acquisition and have a realistic and valuable incentive deal coming after that.

I read in the San Jose Mercury News that th eemployees owned 2/3 of the company’s stock at the time of sale - one of the co-founders said that - how can that be if they really did get so much vc funding in 4 rounds? Check out the article:

http://www.mercurynews.com/search/ci_5440877

Is he referring to some sort of different class of stock that is worth far less than the investors have?