Microsoft's Whisper: A Dragon Slayer or a Real Saint?

Dragon Systems accuses Microsoft of foul play in its SEC filing.
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Is Microsoft (MSFT) - Get Report positioning itself as a dragon slayer in the speech recognition market? Dragon Systems believes so and has even gone so far as to say so in its IPO filing with the Securities and Exchange Commission.

But a Microsoft technology officer insists that simply isn't true. As a result, would-be investors in Dragon's upcoming IPO are left wondering just whose version of events they should believe. At the very least, the issue has put a cloud over Dragon's upcoming offering at least as thick as the perennial overcast skies over Redmond, Wash.

It all began when Dragon included the following phrase in the initial filing for its IPO, filed last December:

Recently, Microsoft publicly stated its intention to bundle SAPI and its own competitive speech recognition technology, known as 'Whisper,' into future releases of Windows ... This could make it more difficult for us to market innovative products.

That little item was reported by

TSC

colleague

Herb Greenberg.

But the devil is in the details, as they say, and Dragon's filing goes on to explain the ramifications of Microsoft's initiative:

In September 1998, Microsoft made SAPI 4.0, which contains Whisper, widely available to the Microsoft Developer Network free of charge.

Just so we all understand one another, SAPI -- or Sound Applications Program Interface -- is a quasi-standard that attempts to establish standardized playing rules for third-party software developers to enable them to create programs that will work effectively with other applications.

In this case, Dragon Systems,

IBM

(IBM) - Get Report

, with its ViaVoice product, and

Lernout & Hauspie

(LHSP)

are the third-party developers who desperately need their products to work well with all of Microsoft's products. Any product that does not work seamlessly and efficiently and easily within Windows 98, Office 2000 and all their successors is DOA -- no, make that DBA (Dead Before Arrival).

That's why the alarm bells sound when the Dragon prospectus goes on to read like the preamble to a fresh round of antitrust litigation:

Microsoft also has taken steps to make the new release of SAPI more restrictive to competitors' speech recognition technologies. This could make it more difficult for us to market innovative products. For example, SAPI requires the use of a computer mouse to correct errors. This feature renders useless our voice-based error-correction capabilities.

Dragon's complaint centers on the fact that voice-based error correction is a hands-off operation in which the user can correct spelling and other mistakes using voice commands. According to Dragon, Microsoft is imposing a standard that relies on the more conventional method of mouse and keyboard.

"If that's true, that sounds more like a bug or mistake on Microsoft's part," says voice recognition consultant and analyst Bill Meisel, president of

TMA Associates

in Tarzana, Calif. "To the extent that Microsoft would intentionally add something that would cripple such a popular feature as voice correction, I would think they'd have to take it out." Meisel says he has served as a consultant on an occasional project basis to both Microsoft and Lernout & Hauspie.

Yet Dragon's filing is adamant on this point:

If Microsoft bundles Whisper with Windows, and is successful in influencing independent software developers to use Whisper when speech-enabling their software applications, or continues to make SAPI more restrictive with respect to non-Microsoft speech recognition technology, we will sell fewer products and our future financial results will be materially and adversely affected.

Say It Ain't So, Bill!

What does Microsoft have to say about all this? The whole thing is a surprise to Doug Henrich, director of Microsoft's Speech Technology Group, who says Dragon's SAPI concerns are a mystery to him. "We've had many meetings with them and they've never brought this up."

Henrich sounded genuinely puzzled when he talked to

TheStreet.com

: "We're working on version 5.0 of SAPI, and Dragon is very involved with this." He mentioned that Dragon Systems has several technical representatives in the SAPI process and that he had personally spoken with Janet Baker, Dragon's co-founder and CEO. Says Henrich, "I'm very appreciative that they are engaging this so tightly; all their concerns are being looked at as we build the API."

If that's true, is this a case of a Dragon crying wolf? Dragon Systems spokeswoman Renee Blodgett says the company cannot comment since it is in its pre-IPO quiet period. But without answers, this and a lot of other questions are forming the kind of dark clouds that nobody likes hanging over its IPO.

So, is Microsoft being a saint -- or just St. George, trying not to complicate its current antitrust case? Significantly, Dragon loses regardless of which version of events best reflects reality: If Dragon is right, then it could be one more carcass on the Road to Redmond. If Microsoft is right, then you have to start wondering about a company that would put such a statement in its SEC filings.

Perdue helped launch three technology companies in roles ranging from marketing executive to chairman/CEO. He has written widely on technology for InfoWorld, PCWorld, Interactive Week, Forbes ASAP and many others. Perdue is also editor and publisher of

Wine Investment News. At time of publication, he held no positions in the stocks discussed in this column, although holdings can change at any time.