GEO Investing

By Josh Franklin (jkvaluefund), Guest Contributor

In 2009, Apple (AAPL) licensed Siri from Nuance (NUAN) for an undisclosed amount and inevitably changed the way consumers search for day to day information on their smart phones. In 2010, AudioCodes (AUDC) acquired NSC (Natural Speech Communications) for approximately $10 million in order to own the voice recognition software that it ultimately wanted to bring to market. This month, after two years of market research, R&D, and fine tuning, it is finally ready to soft launch a cloud based mobile and desktop Over the Top (OTT) app for Enterprises and consumers in the United States, Latin America, Germany and Israel. The app is known as VocaNOM and this Software as a Service (SaaS) app can finally put AudioCodes on Wall Street’s radar for years to come as it reaches major league status with tier one Service Providers and Enterprise WINS.

Industry research puts the voice recognition market at over $113 billion by 2017. The market is broken up into 3 parts; Enterprise, consumer and healthcare. The report values Enterprise at $42 million up from ~$20 million in 2012 and consumer at $65 million up from ~$29.5 million in 2012. One can see why AudioCodes has quietly built a solid voice recognition & speech analytics offering to compete with the likes of Nuance. The market is currently huge and growing at ~15% CAGR which currently dwarfs the estimated $5 billion total available market (TAM) the rest of AudioCodes competes in. We believe this is a product offering that cannot be underestimated or overlooked as Service Providers and Enterprises want to exploit OTT for each of their respective reasons.

It’s time to understand VocaNOM!

VocaNOM is an innovative cloud-driven application for companies and organizations allowing voice-based dialing and routing.

For a description of how VocaNOM works I have turned to AudioCodes’ blog for an explanation.

VocaNOM in a nutshell

We all know what personal assistants are, Siri being one good example. Less common are personal assistants at the enterprise level. As an employee in an enterprise, not all of the enterprise information is stored on your mobile device and synced.

VocaNOM comes to solve a few fundamental issues:

  • How do I find contact details of a colleague who is not in my contacts?
  • How do I call this contact easily without starting to search my contacts when not really free to do so? (e.g. while driving)
  • How do I make sure my enterprise contacts are always in sync?

The scenario using VocaNOM is as follows:

  • You press a quick dial on your mobile or desk phone
  • You state the name of the person you are looking for and on which device to call him/her
  • The call is connected

This is as close to hands free/hassle free as it can get (that is until we have brain-controlled systems where you only need to think about the person you want to call).

No long search in the corporate directory or phone contact list and no driving while typing the name of a person (which is dangerous and rightfully illegal in many countries).

The idea behind VocaNOM is simple but can be realized only when you have a technological and product heritage as available at AudioCodes. The ingredients required to achieve this included:

  • Great and accurate speech recognition technology fully controlled by the company so we can modify and adapt the technology to run in any environment
  • An SBC that connects to any existing PBX and UC environment

All this was combined into a product that was installed on premise at enterprises. But we wanted more… We wanted to make the on-boarding of new customers as simple as possible. We wanted to make their buying decision risk free. We wanted to let people try it out instantly. The answer to this was to move VocaNOM to the cloud and offer it as a service.

VocaNOM is an Over the Top app that resides in the cloud and will bring voice recognition to the Enterprise user. It has been trialed, tested and reworked in Israel over the past 16 months. This technology has very sensitive voice recognition unlike many of the other systems such as Siri itself. For example, “How you doin?” from New York is quite different than “hey dude”, from California. AudioCodes has built voice recognition systems that are tailored made for different accents so that East coast and West coast accents are picked up accurately and efficiently.

VocaNOM today is a cloud directory voice driven application. The Enterprise’s directory is stored in the cloud and delivered thru an app on the end users smart phone and in the near future on an IP phone. Tomorrow, I believe the system will go beyond the directory as AudioCodes is pushing the envelope on this technology to become the Siri for the Enterprise. Think about being on the road and the numerous calls you have to make to your assistant to send you something or to assist you in something. VocaNOM will be working on being there for these tasks. This mindset means that this application has the potential to add millions of subscribers by 2016.

The trial in Israel, has made Intel (INTC), Teva Pharmaceuticals (TEVA), SodaStream (SODA) and Comverse (CNSI) real believers as they are still current customers of VocaNOM along with other major universities and businesses. In fact, many are pushing AudioCodes to bring the technology outside the Hebrew language. I believe VocaNOM will be introduced, marketed and launched throughout the 2nd quarter and by the 3rd quarter we could see more than 1-3 solid partnerships that more than validate AudioCodes’ stealth work behind the scenes.

VocaNOM is much more than voice recognition. Again, I would like to bring your attention to the AudioCodes blog to help describe why it’s more than voice recognition and why most Enterprises will adopt this app for its employees.

Hey boss! Can I bring my iPhone to work today?

As smartphone usage is getting more intense and our device becomes essentially a body part, it’s no wonder why ‘Bring Your Own Device’ has become a living nightmare for the enterprise.

Remember that time when your workplace was the first to deploy innovative technology? Computers, monitors, office phones, voicemails, car phones, you name it — all of these were initially adopted by enterprises wishing to make their employee’s work more productive. New technology was taken as a professional perk, and employees were happily adopting it to their own benefit as well as that of the company.

C-level managers loved it… Why? Well, not only because they could easily hand-out new technology to employees who adored them in return, but mainly since they had full control over their employees’ communication. Your boss could make sure you weren’t saving confidential material where you really shouldn’t; Your IT manager could keep track of how many calls you were having with your wife. But then came the iPhone.

When work gets tough, the tough get to work

We live in a world where sending a WhatsApp message to a potential customer or investor can be better than an email. We have our colleagues’ numbers and emails stored on our smartphones. And gods forbid, some of us even have Dropbox access to our office files and folders. New technology now arrives at the consumer’s front door way before a workplace even thinks about taking it seriously. People want to use their devices to their full extent, even more so while working. The result? Absolute chaos.

The secret war between you and your boss

Striving to keep up with the extraordinary pace of new devices and services, companies are becoming quite desperate. In some cases, a workplace is intelligent enough to respect the need for mobile access and provide mobile VPN access, or transfer corporate emails to the cloud. But at the same time, IT departments are forced to obsessively block websites and online services throughout the organization, just to keep everyone focused at work. There is a battle going on between you and your workplace, and we already know the winner…

Source: Deloitte TMT Predictions 2015 @ Deloitte Canada, SlideShare

Enterprise mobile apps make peace

What if I told you about a mobile app that allows you to call your co-workers without even having their numbers stored on your phone? And what if I told your C-level management they could still have analytics of corporate phone calls, even when their employees are making phone calls from their smartphone, like they want to?

VocaNOM powered by AudioCodes is a brand new speech driven mobile app for the enterprise. It allows employees to call coworkers by simply saying their name. Corporate contacts are securely stored on the cloud for easy access, and call analytics are automatically generated. Your employee’s Siri just got a whole lot better. Bring your own device? Our pleasure!

VocaNOM has solid speech recognition, solid speech analytics and solid direct routing (SBCs) that provide excellent quality of experience and quality of service for the Enterprises. In addition, no corporation wants the PR nightmare of one of its employees driving a company or rental car on company time to be related to a horrific tragic accident due to looking up contacts on their cell phone. You never know when pushing the envelope becomes food for the media (eg; Walmart’s truck driver crashing into Tracey Morgan and severely injuring him and killing another). The small fee per user saves time, keeps an eye on employee production, keeps innocent lives safe and has a number of goodies to come in the future.

The Business Model:

VocaNOM is basically designed to be a SAAS application. This is where the revenue stream usually comes from an upfront licensing fee and a recurring monthly royalty or fee. This would be AudioCodes first such SAAS product and revenue stream. It could elect to just license the product to a number of service providers and/or handset OEMs (Samsung, Apple, Amazon (AMZN), Microsoft (MSFT), Google (GOOG), Motorola (MSI)) upfront and allow them to bring to market on their own accord or they could partner with them bringing no upfront fee and charging the Enterprise and consumers a monthly fee. In any event, the gross margin on this business model is ~50% higher than the corporate average of 58-60% and the revenue is recurring every month.

AudioCodes has made a concerted effort to break free of being a product only company to become a solutions company to voice networking. In some respects, they are an ABC, Anything But Cisco company which allows for example, software giant Microsoft to serve its UC Lync system, now Skype for Business as a wholly owned plug and play solution whereby AudioCodes provides all the hardware (in the process of being converted to software), software, logistics and services of bringing the system together as smoothly as a Cisco (CSCO) only UC system.

VocaNOM and OneBox365:

One prime example of AudioCodes’ solutions strategy could be combining VocaNOM to its new OneBox365 offering. OneBox started out for SMB of up to 500 employees and could be implemented in approximately 20-30 minutes. The feedback was so strong from industry sales forces that AudioCodes launched 2 big brothers to OneBox to address 500 — 5000 employee operations. Microsoft will undoubtedly know of the success of OneBox already as I believe its success will be well above even internal estimates as 2015/2016 plays out. You could hear it from resellers at the recent Enterprise Connect event. I believe Microsoft will come to love VocaNOM in OneBox and potentially adopt it for its Nokia handset line.

The CEO of AudioCodes made his bet 5 years ago when voice networking companies were going bankrupt left and right and when tombstones were being written “who needs voice when you have email and texting”. At that time, AudioCodes built its strategy around Microsoft’s future efforts at becoming a universal PBX replacement. It took some time for Microsoft Lync to get legs in the market place but there are solid signs that it’s gaining steam on Cisco and Avaya and could be the leader in 3-4 years out. That said, AudioCodes has designed all it efforts around making Microsoft’s sale of Lync as logistically simple as possible. Its One Voice campaign has been a big success to Microsoft as it allows Microsoft to sell its voice system in a one price format similar to Cisco. It’s this approach that separates AudioCodes from the very few competitors that remain. I believe VocaNOM will add another value added feature to an Enterprise’s voice network.

What Can VocaNOM Bring To The Bottom Line:

VocaNOM, is an OTT app that is designed to be a platform (not a one trick pony) for future features and services for Enterprise users. This product will pack heavy leverage to AudioCodes’ bottom line. I’m not sure how AudioCodes plans to attack its business model but I believe the company only needs 1 million subscribers to add 08 — 10 cents to earnings per share. You can imagine how 5 million subscribers would benefit the company over the next 2 years. It has to have a solid marketing campaign and solid partners on both the Service Provider side and the handset OEM side to give it a chance to potentially become viral and adding 5-10 million users. I believe AudioCodes has worked its tail off to perfect the app and to have some nifty new features to come. Remember, WhatsApp was sold for $19 billion and Viber for $900 million, while Snapchat has raised funds valuing it at $15 billion and Tango also raised funds valuing it at $1-2 billion. AudioCodes has been working on many mobile initiatives and I believe one day it’ll be known as a great OTT voice player, the question that remains is will VocaNOM be known as a multiple billion dollar OTT voice app? My answer today is: at a $200 million market cap with $160 million in revenues, $85 million in cash, profitable and with a ton of technology in voice — it’s almost crazy not to invest in VocaNOM never mind the whole business at these prices. AudioCodes has been doing just that acquiring ~1.6 million of its shares since August at an average price of ~$5.10 per share. Certainly, the company believes VocaNOM is about to be Known.

Disclosure:  Author was long AUDC at time of article


GeoInvesting has no affiliation with Josh Franklin in any way, nor has it vetted this information in any way. The GeoTeam does not attest to the accuracy of the information contained in this report and always urges investors to conduct their own due diligence. The GeoTeam has received no compensation for the dissemination of this report.