L&H Technologies Regain Voice With ScanSoft

The Dragon is down but far from slain. Scanner vendor ScanSoft says it will buy the speech recognition assets of bankrupt Lernout & Hauspie for $39.5 million, acquiring the technology that powers Dragon NaturallySpeaking as well as the L&H text-to-speech product RealSpeak.

The purchase is subject to regulatory approval, but experts don't anticipate a hitch.

ScanSoft will keep the popular Dragon product line on the market and continue to develop the technology, says Wayne Crandall, senior vice president of sales and marketing.

ScanSoft is known for its OmniPage OCR scanning software and its digital document management software. By absorbing speech recognition into its portfolio of offerings, ScanSoft plans to add dictation functions to existing product lines, Crandall says. ScanSoft is looking into putting speech recognition into automobiles and developing telephony-based products--both initiatives L&H had in the works at the time of its bankruptcy.

Logical Addition

ScanSoft has bundled L&H's RealSpeak text-to-speech software with some of its optical character recognition programs.

"This is not a change in course for ScanSoft," Crandall says. "This will be a way to expand on our core language recognition products and technology in a logical new direction."

Analysts say the merger makes sense. "Optical character recognition and speech recognition are similar in many ways," says Amy Wohl, president of Wohl Associates. Both speech recognition and OCR use predictive language technology to extract editable documents from the words.

ScanSoft's purchase of L&H's speech recognition technology also brings stability to the entire speech recognition market, says William Meisel, president of TMA Associates, a speech marketing consulting group.

The downfall of L&H has caused "a lot of uncertainty in the market that has hurt sales," Meisel says. "For a while the future of L&H's speech technology was anything but certain."

Belgian-based L&H was once the world's leading maker of voice recognition software. Over the past year it has struggled to recover from financial troubles, including alleged accounting irregularities that prompted arrest of the company's founders. It sought reorganization under bankruptcy laws in the United States and Belgium. The situation led in October to the firm being declared insolvent and its assets being put up for sale.

Market Still Speechless

Unit retail sales of boxed copies of speech recognition products have plummeted for both L&H and its chief rival IBM and its ViaVoice product. Sales are down nearly 50 percent from last year, according to market researchers at NPD Intelect.

Analysts say the market became unstable as market leader L&H struggled. The downturn also resulted from reduced marketing by both IBM and L&H, says Steve Koenig, senior analyst with NPD Intelect. Also, more products are being bundled with speech recognition, Koenig notes, citing Microsoft Office XP, Corel Word Perfect, and Lotus Smart Suite.

"Increasingly, there is less reason to go out and buy a shrink-wrapped [speech product] box," Koenig says. ScanSoft says it plans continue the trend, bundling speech recognition with many of its software products.

Despite lower sales, IBM has benefited in some ways from L&H's woes. In October, its ViaVoice products gained a narrow sales lead over VoiceXPress and Dragon NaturallySpeaking, according to NPD Intelect. IBM owns 53 percent of the U.S. retail sales market, compared with only a 27 percent share a year ago.

The sale of L&H's assets restored some former market players, as well. Dragon Systems founders James and Janet Baker acquired L&H's audio search engine technology assets, which they helped develop. Their new company, Dragon Catalyst, paid $750,000 for the technology. The Bakers sold Dragon Systems to L&H in 2000 for $460 million of now-worthless L&H stock.