Voice recognition: the Kurzweil model.

Kurzweil Applied Intelligence has spent the last eleven years building a business based on voice recognition, a once-exotic technology that suddenly seems to be moving into the limelight. By most measures, Kurzweil AI is the kind of success story that makes new tech: ology markets look like good risks: The company is a profitable, $14 million enterprise with 700 customer sites, a well-respected product line, and a deep understanding of how to turn an "enabling technology" into real products.

But Kurzweil's strategy also challenges popular wisdom about the best way to exploit new technology markets. Rather than chase broad-based corporate sales, Kurzweil started with a narrowly-defined vertical market focus. The company sells a $40,000 turnkey system, called VoiceMed, that's targeted exclusively at medical transcription applications; three versions of the product help emergency room doctors, surgical pathologists, and radiologists fill out patient reports without touching a keyboard. Medical transcription may be a narrow slice of the whole universe of possible voice recognition applications, but it turns out to have remarkably high paybacks for users. Doctors are constantly dictating reports and updating patient histories, and the clerks who manually transcribe this dictation often have trouble with complex medical language.

By focusing on a single high-value application, Kurzweil's developers have gained some important insights about commercial uses of voice technology. They've discovered, for instance, that the accuracy and speed of voice recognition increases dramatically when the system "understands" the context and structure of dictated text. "The real power of the VoiceMed system is its knowledgebase," says Kurzweil vice president Mark Flanagan. "The accuracy of voice recognition goes up dramatically when the system can make educated guesses about what it hears."

For example, says Flanagan, VoiceMed has detailed knowledge of what questions should be asked in compiling a patient history. At each step, the system automatically suggests appropriate words and phrases. If VoiceMed hears a doctor dictate the word "cardioversion," the system immediately suggests a sentence filled with likely text choices: "Cardioversion was done for [ventricular fibrillation, ventricular tachycardia, atrial fibrillation, PSVT...] at [360, other number] watt/sec, [1, other number] times. It [was, was not] successful." (In fact, VoiceMed's step-by-step prompts embody so much expertise about correct medical procedures that some insurance companies give users discounts on malpractice fees.)

VoiceMed's success raises an inevitable question: Can Kurzweil replicate its product model in other vertical markets, such as legal and financial services? And are there any genuinely compelling voice applications in the general desktop market? Flanagan says the company has some ideas that look promising--not just "fanciful things that might happen in the far future," but applications with the same payback and urgency as medical transcription. "We've been invisible for a long time, but that's going to change."

But even if mass market voice applications don't turn out to be winners, Kurzweil has plenty of room to grow its core medical business: According to Flanagan, VoiceMed has penetrated only about 10% of a hospital market that currently spends $1.5 billion a year on transcription services. "We're still just scratching the surface of a market we already dominate," he says.

It's interesting to contrast Kurzweil's vertical market strategy with the mass-market and consumer approaches that have become common practice in the pen, multimedia, and even voice input markets. Clearly, there are fast payoffs for developers who manage to penetrate big markets. But these markets are also unforgiving toward products and technologies that aren't ready for prime time. The Kurzweil approach takes more patience, but we suspect it ultimately produces more winners.

Mark Flanagan, vice president of business development, Kurzweil Applied Intelligence, 411 Waverly Oaks Rd., Waltham, Mass. 02154; 617/893-5151.