Yesterday Yahoo smiled upon Harvard Square, not only picking Dunster Street startup Vlingo to provide a speech recognition system for its oneSearch mobile search program, but putting up a whopping $20 million in venture capital to finance the company’s expansion. After publishing our story on the deal, we reached Vlingo CEO Dave Grannan at the CTIA Wireless conference in Las Vegas, where Yahoo announced the Vlingo partnership.
Grannan revealed a few details that weren’t in circulation yesterday—including the fact that Yahoo is now Vlingo’s exclusive marketing partner. (Which isn’t too surprising, considering that the second-round investment more than triples the company’s venture stake.) Read on for the details on this and other aspects of the agreement.
Xconomy: Tell me how the Yahoo deal came together. Did this start out as a software partnership that then led to an investment deal, or was it the other way around?
Dave Grannan: We started working with Yahoo last fall when they were evaluating speech technologies. They knew they wanted to do something with speech technology in their mobile products, so we entered a bake-off where they compared us against other companies. And they told us the results were so dramatically better than anything else they had seen on the market that they wanted to license the technology. But one of the things they also wanted to do was invest.
X: So does Yahoo have a pot of money that they invest in partners or suppliers who are going to help them expand into new technology areas?
DG: I don’t think it works exactly like that. They’re not like, say, a Nokia with Nokia Ventures or an Intel with an Intel Capital. They don’t really have a venture capital operation. But from time to time they do make these strategic investments.
X: It’s a pretty big strategic investment, compared to your Series A round. How will you use the money?
DG: Yes, our first round in December 2006 was for $6.5 million, so this is significant. Primarily, we’ll use it for internal expansion. A big part of it will go to developing our technology in other languages. What Vlingo does that is unique in the market is unconstrained speech recognition. You can say anything you want, and our software will recognize it. That’s the intellectual property we’ve developed. At the core speech-engine level, languages don’t really matter—but this adaptive loop we’ve built to allow unconstrained speech has to be built language by language. So the bulk of the investment will go for developing the product in other languages and to some extent for the sales and marketing operations we will need to build in Europe and Asia.
X: I assume you’ll be working with Yahoo on versions of the program that work on devices other than the Blackberry (which is all it works on now)?
DG: Yes, we’ve got a whole road map laid out. Between now and the end of the year we’ll have voice-enabled oneSearch working on other smart phones like Windows Mobile phones, as well as full-featured regular phones like J2ME and Brew phones.
X: Can you also license the Vlingo software to other mobile search providers, or do you now have an exclusive relationship with Yahoo?
DG: The relationship is exclusive both ways—meaning that Yahoo only buys speech recognition from Vlingo and Yahoo is the only mobile search provider we can sell to. The one exception we have, the one “out,” is if a wireless operator were to say, “Vlingo, we’d like you to voice-enable everything we have,” and they happened to use some other search provider. Then we’d be allowed to do that.
X: Do you feel that Yahoo is a big enough partner that it was okay to forego those other licensing opportunities?
DG: That’s right. You could ask, ‘Why are you getting an investment from Yahoo, a strategic investor, rather than just another venture capital investor,’ and the answer is what you just said. Yahoo has contracts with 29 wireless operators who cover 600 million users globally. From our perspective, if Yahoo invests and is on our board of directors and is bringing us to 29 partners around the world with 600 million subscribers, and we have Yahoo really caring about not just how well our product performs but how well the company does—that was just a set of assets and resources that no financial investor could give us.
X: When I visited you guys last August you were just moving into your Dunster Street offices, which were mostly still empty. I imagine things are a lot busier now.
DG: We’ve had quite a bit of growth since then. We were maybe 11 or 12 people when you visited. We are 35 people today.
X: Will the work on adding more languages involve opening offices in other countries, or do you plan to do most of that work here in Cambridge?
DG: Most of the R&D will always go on here in Cambridge. We may hire some consultants in international language development for the short term, but for the foreseeable future, we’ll keep all of the R&D in Cambridge and then hire the occasional sales or marketing person in Europe.
X: What stake in the company did Yahoo take as a result of their investment?
DG: I’m not able to say on that one—we’re sworn to secrecy.
