In a strange slip up last November, Apple co-founder Steve Wozniak said that Apple had purchased Nuance Communications for its Speech recognition technology.  Apple, of course hadn’t, but the reason it was such big news was because the deal, on many levels, did make sense.

Nuance is the recognized global leader in speech recognition technology (and patents) and importantly provides the speech recognition capabilities behind the Siri Artificial Intelligence application that Apple purchased last year (which likely accounts the confusion in Woz’s statements).  Siri is expected to be a huge part of Apple’s iOS 5 which is due to be previewed at WWDC next month.  One significant current advantage of Google’s competing AndroidOS over Apple’s iOS is its OS-level integration of speech technologies and the resulting Voice Actions features.

Apple’s acquisition of Siri is seen as a way to not only match Google’s speech recognition but then leapfrog Google with Siri’s Artificial Intelligence (shown below):

The problem is that Apple doesn’t own the underlying speech technology and if you’ve followed Apple, you know that it likes to own and control the important technology it uses.  We discovered in December (just a month after the Woz slip up) that Apple was hiring all kinds of speech recognition scientists.  But is Apple building its own Speech recognition engine from scratch to take on the likes of Google and Nuance (who has been at this for decades)?  Probably not.

According to TechCrunch, Apple is significant negotiations with Nuance to either licence the software or even an acquisition of the company.

Apple has been negotiating a deal with Nuance in recent months, we’ve heard from multiple sources. What does that mean? Well, it could mean an acquisition, but that is looking fairly unlikely at this point, we hear. More likely, it means a partnership that will be vital to both companies and could shape the future of iOS.

At the time of the Woz slip up, the company was valued at $5B (though shares went a little nuts that day, sorry).  Today, Nuance is worth $6B and an acquisition would likely be much more costly.  Apple however, has been building up a cash horde for just such an occasion and now has ten times more than Nuance’s value in the bank.

While TechCrunch says a deal is unlikely, a tie-up still makes a lot of sense.  Speech recognition is a core functionality for mobile devices now and even more in the future.  Google is even building its speech technology into its Chrome browser.

And apparently Siri is playing hardball.

Nuance CEO Paul Ricci can be as hard of a negotiator as Apple’s own Steve Jobs, we hear. And so there has been a standoff, and negotiations have been ongoing for months.

Again, from what we’re hearing, all types of possibilities are still on the table, including an acquisition. But again, that’s not as likely as an expansive licensing agreement at this point. In buying Nuance, Apple would immediately screw over several other competitors that use the technology and it would bolster their position. And given what Google has been building, it seems unlikely that the government would have a big problem with the buy.

We’re pretty sure Apple isn’t worried about screwing over Nuance’s other customers and it feels like Nuance CEO Paul Ricci is gunning for a buyout from this information.  But clearly, Apple is going to do what is best for Apple. TechCrunch notes that Apple used Skyhooks location DB until it was able to build its own.  Apple could negotiate a five year deal with Nuance while it builds out its speech recognition technology.

With a likely unveiling of iOS 5 next month, a deal of some sort would appear imminent.

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Seth Weintraub

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