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Page 1: DMG Speech Analytics Report1

Speech Analytics Market Report Reprint

Reprinted for

Page 2: DMG Speech Analytics Report1

Speech Analytics Market Report Reprint

Table of Contents

1. What is Speech Analytics? ............................................................................1 2. Application Building Blocks............................................................................4 3. Speech Analytics Market Trends ...................................................................6 4. Speech Analytics Business Case ..................................................................7 5. Market Growth Rate.......................................................................................9 6. Market Share Analysis.................................................................................12 About NICE Systems ..........................................................................................15 About DMG Consulting LLC................................................................................15

© 2010 DMG Consulting LLC - i - Reprint – February 2010 All rights reserved.

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© 2010 DMG Consulting LLC - 1 - Reprint – February 2010 All rights reserved.

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1. What is Speech Analytics?

Speech analytics, also known as audio mining, is software that converts unstructured conversations into structured output. The conversations are structured and turned into metadata. The output files can then be analyzed and used by the enterprise. See Figure 1. Figure 1: Speech Analytics Source: DMG Consulting LLC, November 2009 Most of the speech analytics solutions take their input from recorded conversations. The recordings can be captured and provided by any vendor that is able to capture and share them; this includes speech analytics vendors, stand-alone recording vendors, workforce optimization providers, unified communications vendors, hosted contact center infrastructure vendors, etc. While there are a growing number of uses for speech analytics, the primary outputs from these solutions are metadata (files of data) in two primary forms: phonetic representations of the conversations, or a transcript. Some of the solutions create the transcript for internal system use, but do not make it available for their customers, as they believe that it is not accurate enough. (Without using other recognition capabilities, the first pass accuracy rate from a speech-to-text solution may be as low as 40%.)

Recorded and

Real-Time Customer

Phone Conversations (Unstructured)

Structure customer conversations

Create metadata file

Present findings

Speech Analytics Process

Augmentation

Analyze metadata

Top Uses

Root Cause Analysis

Trend Analysis

Emotion Detection

Talk Analysis

Script Adherence

Quality Assurance

Recorded and

Real-Time Customer

Phone Conversations (Unstructured)

Structure customer conversations

Create metadata file

Present findings

Speech Analytics Process

Augmentation

Analyze metadata

Top Uses

Root Cause Analysis

Trend Analysis

Emotion Detection

Talk Analysis

Script Adherence

Quality Assurance

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© 2010 DMG Consulting LLC - 2 - Reprint – February 2010 All rights reserved.

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Each of the speech analytics vendors that sells its own applications has proprietary technology, functionality and methodology to address these challenges. Many have filed patents to protect their speech analytics intellectual property. At a high level, the primary uses of speech analytics today are:

1. Root cause analysis – understanding the reasons why people call 2. Trend analysis – identifying anticipated and unexpected reasons why

customers call 3. Emotion detection – understanding callers’ emotional state (some

solutions can measure emotional changes and heightened states) 4. Talk analysis – understanding caller and agent talk periods, including

measuring silences, holds, transfers, talking over, etc. 5. Script adherence – monitoring how well agents follow their scripts,

communicate required information, or say inappropriate phrases or words 6. Quality assurance – identifying conversations that require management

attention Root cause analysis is an extremely broad category. In addition to addressing “routine” calls, it incorporates everything from identifying at-risk customers to finding new product ideas and detecting the procedures that most annoy customers. There is also an emerging group of real-time speech analytics applications that analyze conversations almost as soon as they happen. (There has to be a slight delay of a few seconds for the application to analyze a large enough snippet of the conversations to identify some trigger for action.) Real-time speech or interaction analytics applications that address both speech and written interactions (chat, email, SMS) are expected to play a very important role in contact centers in the future. A primary feed into a predictive analytics engine will rapidly assess the best approach for handling the customer (i.e., factual or emotional), whether or not to attempt an up-sell, and if so, what to try to sell. Figure 2 shows the essential role that analytics is expected to play in contact centers in the future.

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Figure 2: Analytically-Oriented Contact Centers Source: DMG Consulting LLC, November 2009 Real-time speech analytics solutions can also be used to identify situations where agents do not appear to be in compliance with proper procedures, and provide them with information to help them rectify the situation while the customer is still on the line. For example, if an agent is supposed to verify a caller by asking specific questions but skips this step, a real-time speech analytics application can pop up a screen or send an alert to remind the agent to do the verification.

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2. Application Building Blocks

The rapid adoption of speech analytics has prompted vendors to make significant investments in enhancing these solutions. The enhancements are falling into the following three categories: improving business accuracy/relevancy of the output, making applications easier to implement and use, and making the output more actionable. During the past 18 months, many of the speech analytics vendors have created packaged offerings to help their customers more rapidly and easily implement and realize the benefits from their speech analytics solutions. DMG expects this trend to continue for the next few years. While each solution is different, there are seven conceptual components found in most speech analytics applications. These components are:

1. Speech engine layer – this layer does the initial analysis of the audio

stream and converts the data into a file containing a series of phonemes or a first-pass text transcript.

2. Indexing and analysis layer (augmentation) – software that improves the accuracy of the speech engine’s output. Its role is to make sense of the findings from the speech engine and to index it for further analysis, queries and ad hoc searching. This is where the solutions bring in data from other telephony and servicing solutions along with anything else, such as screen analytics, that can help provide context to improve the accuracy of the recognition.

3. Query engine – a user interface (UI) where end users define their queries and format the output that they expect from the solution.

4. Search tool (criteria) – a tool that is used to conduct ad hoc searches on processed audio files or indices. Search tools should be easy to use and allow nested filtering.

5. Reports and dashboards – formats for formally delivering systems findings in a flexible, customizable and graphically appealing manner that also allows users to drill down and filter their results.

6. Alerts – real-time or historical alerts or pop-ups that communicate an issue to an agent, supervisor or manager. If the alerts are real-time, they may notify an agent of an issue and also bring up a knowledge base or process to show them how to correct the situation.

7. Business applications – pre-packaged applications to help users quickly realize benefits from speech analytics. Modules are available for root

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cause analysis, customer retention, first call resolution (FCR), competitive intelligence, sales and marketing effectiveness, script adherence, collections effectiveness, etc. See Figure 3.

Figure 3: Speech Analytics Technology Building Blocks

Source: DMG Consulting LLC, November 2009

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3. Speech Analytics Market Trends

Figure 4 lists the trends that are impacting the speech analytics market. Some of these trends are driving purchases and others are impacting the solutions. These trends provide clear evidence that the vendors are listening to their customers and enhancing their solutions to meet their needs.

Figure 4: Speech Analytics Market Trends

Source: DMG Consulting LLC, November 2009

• Adoption rate is strong; it grew from 1.6% in 2006 to 6.4% in 2008.

• Primary buyer of speech analytics remains the contact center, although quite a few other departments including Marketing, Sales, Operations, Risk Management, Collections, IT, Fulfillment, and the Voice of the Customer team, are using speech analytics in companies.

• Departments throughout the enterprise are expressing an interest in using speech analytics solutions to help improve their performance.

• Real-time speech analytics solutions are now available to help enterprises more rapidly identify and handle issues and opportunities by improving the customer experience, increasing compliance, identifying at-risk customers, increasing revenue and reducing operating costs.

• Speech analytics is not being used as a replacement for quality assurance, but as a tool to improve the effectiveness of QA programs.

• Vendors are making applications more actionable by incorporating speech analytics results into other solutions, including performance management, quality assurance, coaching and marketing databases.

• Vendors are delivering pre-packaged business solutions to address common issues across verticals. Examples are first call resolution, customer churn, analysis of non-talk time (silence detection, hold times, etc.) and call categorization.

• Vendors are delivering simplified offerings at lower price points to make it easier for users in organizations of all sizes to start adopting speech analytics.

• Vendors have enhanced their speech analytics professional services capabilities, to the great satisfaction of their customers.

• Speech analytics vendors are starting to offer desktop analytics as an optional, value-added module.

• Vendors are delivering visualizations of speech analytics results via heat maps, cloud tags and correlation analyses to help their customers identify the context and relationships hidden within the vast amount of data generated by these applications.

• End users are asking the speech analytics vendors to record their calls in an open and non-proprietary format to make them more readily available for a variety of analytic applications.

• A growing number of vendors are offering speech analytics on a hosted and/or managed service basis.

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4. Speech Analytics Business Case

A business case is a formal proposal for an expenditure or investment that is submitted to an executive sponsor for approval. The business case presents the reason for the investment, details the specific issues that need to be addressed, and discusses the products or services required to address the challenges. It also presents the project’s costs and the projected business and financial benefits. Whenever possible, a business case should include a return on investment (ROI) analysis where the benefits are reflected in financial terms so that the decision maker can determine the impact of the project on the enterprise’s bottom line. ROI analyses encompass three financial measures: the traditional payback analysis, a net present value (NPV) analysis, and an assessment of the internal rate of return (IRR). Most large organizations have approval guidelines for each of these financial measures so that managers requesting investment funds know what it will take to get approval. However, in tough economic times when there are limited investment resources, even projects that meet the financial criteria may not be approved. Therefore it’s really important for prospects to find out what it will take to get approval for an investment before they commit time and effort to quantifying the benefits and writing a business case. However, prospects should be aware that chief financial officers who do not currently have the cash to license an application may authorize the purchase of a solution on a hosted basis. DMG suggests that managers justify investments based on hard quantifiable benefits, such as productivity improvements and reduction in carrier fees, when building a business case. Soft benefits, such as improvements in agent satisfaction and retention, are harder to quantify and therefore should not be included in the initial analysis. When investment dollars are limited, it becomes even more important to base a project’s benefits on categories that the enterprise prioritizes, such as increase in revenue, decrease in customer attrition or productivity improvements. Soft benefits can be used to augment the case but should not be used alone. Another consideration when building a business case is service delivery options. While the payback for a managed service or hosted speech analytics offering can be faster than for a purchased one, DMG Consulting strongly encourages companies to conduct a lease (managed service) vs. buy analysis to ascertain the cost implications of using a hosted model. There are financial and operational implications and trade-offs that should be understood prior to making the decision on how to finance a speech analytics solution. (It’s also helpful to speak to your CFO to find out what approach he/she prefers at any given point in time; keep in mind that preferences may change with a company’s financial position.)

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The great news about creating a business case for speech analytics is that it’s simple and straightforward. Speech analytics can be applied in a wide range of use cases and provides many benefits that can be translated easily into hard dollar savings. See Figure 5. Figure 5: Speech Analytics Hard and Soft Dollar ROI Categories

Source: DMG Consulting LLC, November 2009

Savings and Benefits Hard $ Soft $ Staff

XTimely competitive informationXImproved customer loyalty and brandingXImproved customer experienceXXImproved regulatory compliance

XIncreased campaign conversion rateXDecreased cost of saleXIncreased sales

XReduction in agent turnoverXReduction in line chargesXReduction in hold timeXReduction in agent talk timeXIncreased first call resolution (FCR)XReduction in call volume

XIncreased supervisor efficiencyXReduction in QA staff

XXReduction in agents

XTimely competitive informationXImproved customer loyalty and brandingXImproved customer experienceXXImproved regulatory compliance

XIncreased campaign conversion rateXDecreased cost of saleXIncreased sales

XReduction in agent turnoverXReduction in line chargesXReduction in hold timeXReduction in agent talk timeXIncreased first call resolution (FCR)XReduction in call volume

XIncreased supervisor efficiencyXReduction in QA staff

XXReduction in agents

Cost

Revenue

Corporate

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5. Market Growth Rate

In 2008 the speech analytics market experienced its fifth consecutive year of strong growth. The market grew from 25 commercial speech analytics implementations at the end of 2004 to 1,764 at the end of 2008. (Due to the economic slowdown, the market’s growth slowed slightly in Q4 2008, and continued to be somewhat soft through Q1 2009). Despite the recession, the contact center speech analytics market’s five-year compounded annual growth rate (CAGR) was 190%. See Figure 6. 522 net new solutions were implemented during 2008, fueling a 42% year-over-year increase. While this increase in net new implementations was down slightly from the 639 net new initiatives in 2007, it is still a very significant growth rate, particularly given the backdrop of the world-wide economic recession that froze investments in many IT sectors during late 2008. It’s also important to note that the number of seats per implementation is believed to have increased during 2008 so that while the total number of net implementations is down by 117 from 2007, the number of new seats sold was higher in 2008, as it was in 2007.

Figure 6: Contact Center Speech Analytics Implementations and Percent

Growth, 2004 to 2008

Source: DMG Consulting LLC, November 2009

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2004 2005 2006 2007 2008

Percent Growth

Number of Implementations

612%

239%

106%

42%

CAGR = 190%

25178

603

1,242

1,764

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2004 2005 2006 2007 2008

Percent Growth

Number of Implementations

Percent Growth

Number of Implementations

612%

239%

106%

42%

CAGR = 190%

25178

603

1,242

1,764

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More than four years ago, DMG predicted a world-wide economic recession and we expect it to remain a major impediment to sales of new technology during most of 2010. We expect the contact center sector of the economy to recover in Q4 2010. Despite the world-wide slowdown, DMG expects sales of speech analytics to be brisk and one of the hottest application areas in the contact center market because these solutions give enterprises a new way to address essential corporate goals – retention, increasing sales and reducing expenses/increasing productivity. Figure 7 shows market activity by vendor for 2008 for the primary speech analytics technology providers. Vendors are listed based on the number of seats they had in production as of December 2008. This Figure is a snapshot summarizing the number of implementations, customers, sites and seats in production as of the end of 2008.

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Figure 7: Contact Center Speech Analytics Market Activity by Vendor as of 12/31/08 1

Vendor Implementations Customers Sites Seats in Production

Autonomy etalk 253 160 253 240,000+

NICE 2 653 243 653 156,720

Verint 3 560 210 570 139,500

Nexidia 100 100 100 100,000 4

CallMiner 52 52 75 81,294

UTOPY 51 37 45 45,000

eLoyalty 5 95 40 95 12,535

Total 6, 7 1,764 842 1,791 775,049

Notes: 1. OnviSource went GA in January 2009 with their speech analytics solution, so they are not reflected in the 2008 market share report. 2. NICE numbers are DMG Consulting estimates. DMG estimates NICE’s seat count to be an average of 240 seats per implementation. 3. Verint numbers are DMG Consulting estimates. Verint is not able to share their financial data due to the ongoing investigation into their revenue

recognition issues. 4. Nexidia does not track seats. DMG estimates Nexidia’s seat count to be an average of 1,000 per implementation. 5. eLoyalty’s numbers are DMG Consulting estimates. eLoyalty numbers were calculated by increasing their 2007 numbers by 15%. 6. SER was merged into Siemens in October 2008. Their speech analytics assets appear to have been lost during the consolidation. SER had 6

implementations/customers/sites and 825 seats in 2007, most of which had been installed a few years ago. DMG assumes that these sites are no longer in production since there is no known support.

7. This Figure reflects the primary speech analytics technology providers. These vendors incorporate the market share for their partners. To avoid double counting, partner activity is not reflected in this chart.

Source: DMG Consulting LLC, November 2009

© 2009 DMG Consulting LLC - 11 - Reprint – February 2010 All Rights Reserved

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© DMG Consulting LLC - 12 - Reprint – February 2010 All Rights Reserved.

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6. Market Share Analysis

Figure 8 presents the 2008 market share for speech analytics, based on the number of implementations. Most of the speech analytics vendors track the number of customers, and some track seats (if their licensing model is based on seats). Since few of the vendors track their number of implementations, we worked with them to come up estimates for this category. Measuring the number of implementations is important, as it reflects the adoption rate of speech analytics in contact centers. However, we must point out that speech analytics is increasingly used outside of the contact center in a variety of other enterprise business areas. Sales and marketing are two of the most common non-contact center users, but adoption is growing, albeit slowly, throughout the enterprise. Speech analytics is highly valuable for contact centers but its upside potential is even higher for sales and marketing organizations, as there is no practical limit to the amount of revenue it can help enterprises realize. As of the end of 2008, NICE was in first place, accounting for 37% of all contact center/enterprise speech analytics implementations. Verint is in second with 31.7%, and Autonomy etalk is in third place with 14.3% of all contact center/enterprise implementations. These three workforce optimization vendors accounted for a combined 83% of all contact center/enterprise implementations as of December 2008. The workforce optimization vendors have a major sales advantage over the stand-alone speech analytics vendors because they have a large installed customer base to which they can up-sell. Nexidia is in fourth place with 5.7% of all contact center/enterprise implementations as of the end of 2008. This is highly significant, as Nexidia is a stand-alone speech analytics vendor. eLoyalty is in fifth place with an estimated 95 contact center/enterprise implementations, 5.4%, as of the end of 2008. However, the eLoyalty numbers are entirely DMG estimates for 2008. CallMiner is in sixth place, accounting for 52 contact center/enterprise implementations, a 2.9% share as of the end of 2008. CallMiner does not have a large number of implementations. They are concentrating on winning large deals where each implementation involves a substantial number of seats. UTOPY is accounted for 51 or 2.9% of all contact center/enterprise implementations during 2008. While in seventh place in this dynamic market, they have picked up a great deal of momentum since 2007.

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Figure 8: 2008 Speech Analytics Market Share by Number of Implementations as of December 2008 1

Vendor Number of Implementations Market Share NICE 2 653 37.0%

Verint 3 560 31.7%

Autonomy etalk 253 14.3%

Nexidia 100 5.7%

eLoyalty 4 95 5.4%

CallMiner 52 2.9%

UTOPY 51 2.9%

Total 5,6 1,764 100.0%

Notes:

1. OnviSource went GA in January 2009 with their speech analytics solution, so they are not reflected in the 2008 market share report.

2. NICE numbers are DMG Consulting estimates. 3. Verint numbers are DMG Consulting estimates. Verint is not able to share their

financial data due to the ongoing investigation into their revenue recognition issues. 4. eLoyalty’s numbers are DMG Consulting estimates. eLoyalty numbers were

calculated by increasing their 2007 numbers by 15%. 5. SER was merged into Siemens in October 2008. Their speech analytics assets

appear to have been lost during the consolidation. SER had 6 implementations/customers/sites and 825 seats in 2007, most of which had been installed a few years ago. DMG assumes that these sites are no longer in production since there is no known support.

6. This Figure reflects the primary speech analytics technology providers. These vendors incorporate the market share for their partners. To avoid double counting, partner activity is not reflected in this chart.

Source: DMG Consulting LLC, November 2009 Figure 9 is a graph that shows the market share position of the speech analytics vendors in 2008, based on the number of contact center/enterprise implementations. NICE is in first with 37%; Verint is in second with 31.7%; Autonomy etalk is in third place with 14.3%; and Nexidia is in fourth place with 5.7%.

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Figure 9: 2008 Speech Analytics Market Share by Number of Implementations Graph

CallMiner2.9%

UTOPY2.9%

eLoyalty5.4%

Nexidia5.7%

Autonomy etalk14.3%

Verint31.7%

NICE37.0%

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Source: DMG Consulting LLC, November 2009

All Rights Reserved.

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About NICE Systems

NICE Systems (NASDAQ: NICE) is the leading provider of Insight from Interactions solutions and value-added services, powered by the convergence of advanced analytics of unstructured multimedia content and transactional data – from telephony, web, email, radio, video, and other data sources. NICE's solutions address the needs of the enterprise and security markets, enabling organizations to operate in an insightful and proactive manner, and take immediate action to improve business and operational performance and ensure safety and security. NICE has over 24,000 customers in more than 150 countries, including over 85 of the Fortune 100 companies. NICE is the market leader in providing a holistic solution for contact centers, addressing the needs of stakeholders in the contact center and the enterprise, and meeting a full spectrum of business issues from strategic to operational. Using NICE's solutions, organizations are able to gather competitive intelligence, better up-sell and cross-sell, improve first call resolution, adjust business processes, and increase customer retention. NICE's comprehensive business solution offering is comprised of NICE SmartCenter, the best-in-class contact center solutions, including call recording, quality management, interaction analytics, performance management, workforce management, a customer feedback application, and agent coaching .

About DMG Consulting LLC

DMG Consulting is the leading provider of contact center and analytics research, market analysis and consulting services. DMG’s mission is to help end users build world-class, differentiated contact centers and to assist vendors in developing high-value solutions for the market. DMG devotes more than 10,000 hours annually to researching various segments of the contact center market, including vendors, solutions, technologies, best practices, and the benefits and ROI for end users. Our research covers Hosted Contact Center Infrastructure, Hosted/Managed Service IVR, Quality Management/Liability Recording (Workforce Optimization), Speech Analytics, Surveying/Enterprise Feedback Management, Contact Center Performance Management, Workforce Management, and Contact Center Analytics. DMG is an independent firm that provides information and consulting services to contact center management, the financial and investment community, and vendors in the market. This reprint is excerpted from the 2009 – 2010 Speech Analytics Market Report, which was released in November 2009 with the permission of DMG Consulting LLC. More information about this Report and DMG Consulting is available at www.dmgconsult.com.