It's Not Amazon: Here's Fire TV's Real Winner

Amazon.com (NASDAQ: AMZN  ) announced the Fire TV to what seemed like a disappointed crowd, but there may be a hidden investment buried in the release. Although it's still difficult to see how another set-top box will compete with gaming platforms and the web from a content standpoint, the controller had one notable competitive advantage. You can talk to it. This may be the catalyst Nuance (NASDAQ: NUAN  ) needed to break its downward trend.

Now that there is one TV remote with voice control available on the market, it's likely going to move from being a "nice to have" feature to being an "need to have." Because this application is more consumer electronics than mobile phones, it's a distinct possibility that companies like Sony, Samsung and LG will be following suit. Speaking the name of a movie when searching Netflix is much better than typing one character at a time on a game controller.

Apple (NASDAQ: AAPL  ) was the first company to really get voice recognition for everyday consumer applications. Siri has been a key differentiator for the iPhone and a big hit with consumers. My wife even refers to Siri as my girlfriend since we have such a close relationship. Nuance is rumored to be the back end of Siri, although neither company would comment on it. If you ask Siri herself "Are you nuance?" She also replies "no comment."

Amazon has the technology, or does it?
Amazon bought Ivona in January 2013, a company that competes with Nuance on voice recognition technology and was used in Kindle products. Amazon then followed up that acquisition by buying Evi, a competitor to Siri that sits on top of Nuance's voice recognition engine. Case closed right? Not so fast.

No press releases were issued by Amazon or Nuance discussing an alliance but listed in the customer wins of the June quarter, Amazon's name was tucked away, right behind Airbiquity. There's no reason for Amazon to raise questions about why it needed to fall back on a competitor for one element of the solution and customer confidentiality clauses are regularly included in software contracts.

What does Carl know?
A few months back, when Carl Icahn raised his stake in the company to 19% it seemed like a very bad idea. The company was around $13 per share and the prospects looked bleak. Maybe he knew a bit more than he let on from the time his team spent working on the investment in Netflix?

Icahn isn't the only one buying the stock. Columbia Management holds 3.4% of the company and increased its holding by 40% in the last reporting period. Other notable investors increasing positions include Two Sigma, Ivory, and Blackrock.

It isn't unusual for an innovative company to be ahead of its market. Nuance built its business as an Integrated Voice Recognition (IVR) vendor and built up unusual expertise over the years with phone systems that can now be applied to consumer electronics. The only problem is that they make the technology but not the application for it.

The only applications Nuance can really offer out of the box are dictation and voice control of a device, neither of which are practical in a large open-office setting. How annoying would it be to have 100 people lined up shoulder to shoulder in cubicles dictating MS office documents or saying "File Close." Searching for Netflix movies on your TV or interacting with your car audio equipment could be the application the company's technology needs to hit an inflection point in adoption.

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Read/Post Comments (5) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 03, 2014, at 3:57 PM, cyclone wrote:

    I think you need to do a bit of diligence - Samsung, LG, and Panasonic are all shipping TV's with microphones built into the remote. For Samsung it's in about 1/2 of their models (the 6400 and higher series), LG will have it in all their 2014 smart TV's, and Panasonic has it in a few models.

  • Report this Comment On April 03, 2014, at 4:09 PM, Mathman6577 wrote:

    It's doubtful that Amazon will pentrate the market that much w/ Fire. All of the hype sounds familar as to when Kindle was released. The tablet hasn't been a good seller with a low penetration into the market. In the meantime Apple has cleaned up w/ iPad.

  • Report this Comment On April 03, 2014, at 5:33 PM, dpelleratgmail wrote:

    Thanks for the comments!

    Mathman, I dont see that much of a differentiation and tend to agree with you about demand, the investment opportunity is more about bringing voice to every day consumer appliances and Amazon striking a deal with Nuance after buying a company that competes with it.

    Cyclone, many thanks for the heads up on LG and Panasonic. I thought Samsung was the only one that was shipping. From what I understand the 6400 is priced at $1500 which struck me as high end rather than mass market. You clearly know more about the TV models than I do. Thanks for the additional info.

    As an aside, I try to use MF as a forum for discussion and I write about a broad range of topics so if you see any mistakes or rough edges, please let me know and keep the feedback coming.

  • Report this Comment On April 03, 2014, at 7:59 PM, danialwilson wrote:

    The announcement of Amazon launching the Fire TV was perceived as a threat for Netflix, Inc., which is the country’s leading internet TV provider. Following the news, Netflix stock shed some of its value and http://goo.gl/ik8jUi

  • Report this Comment On April 06, 2014, at 6:55 AM, Mathman6577 wrote:

    Sorry David: I didn't mean to imply that you were part of the hype. Good article overall. I'm just not a fan of Amazon (or Google) trying to compete in hardware, where Apple and Samsung are the big players. Amazon needs to stick to its expertise.

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