Swype built a powerful technology that allowed mobile phone users to input text with the swipe of a finger rather than a tap, speeding up the way millions of people crafted emails and text messages. And while the Seattle company was on a path to top 100 million installations this year, the Swype team felt their best shot to accelerate the business would be to ally with longtime rival Nuance Communications.
On Friday morning, Burlington, Mass.-based Nuance agreed to acquire Swype for $102.5 million, a deal that CEO Mike McSherry tells GeekWire was a “great outcome” for employees and investors.
We chatted with McSherry this morning to get his take on the deal, the upcoming product integration and why he felt now was the right time to sell. McSherry also discussed some of the roadblocks Swype faced in trying to get its text-input technology onto the iPhone and Windows Phone, which bar third-party keypad software.
Swype’s more than 90 employees won’t have far to travel to become part of Nuance, which maintains a large engineering center in Seattle’s Pioneer Square neighborhood just five blocks south of the Swype headquarters.
Here’s more from GeekWire’s interview with McSherry:
How are you feeling about this deal? “Fantastic, and relieved.” (Laughs).
Is this the financial outcome that you had hoped for with Swype? “With any startup, you never truly know the outcome. And, as you grow the business and raise more money, expectations build up and I think we matched them perfectly.”
Nuance specializes in speech-recognition. What’s the plan to integrate voice into Swype? “Certainly, we have teams working on that. The transaction just closed, so expect to see something shortly. We have worked with Nuance in terms of putting a microphone button on our keyboard that would do voice dictation, and we have done some technical integrations with Nuance, but nothing has been released commercially yet…. You are seeing speech recognition more in mobile devices — along the lines of what the iPhone just launched.”
Nuance has a similar technology to Swype called Trace. So, why are they buying you? “The team, the energy, the innovation, the brand that we’ve built up, and there’s going to be a huge focus on bringing the creativity to their overall suite. With our engineering and product leadership, I think we are going to create some very fun future products.”
Will the Swype brand live on? “Absolutely. Absolutely…. We have built up the brand as a distinct style of input, and some of theirs have been a little bit subsumed, calling them Samsung Keypad or HTC Keypad. Swype keypad stood independent, and there’s a branded relationship that we will carry on directly with consumers.”
Why sell the company now? “Earlier this year, we raised money and we had some offers to raise large amounts of money — tens of millions of dollars. And at the same time, Nuance had approached us, and we were looking at the risk-reward of going big with another large financial raise … versus going with something whom we thought there was a very natural product partnership in. We thought the opportunity to join with Nuance was going to be the better path for the company, and we think it has produced a great outcome.”
In the past, you’ve said the goal with Swype was to build something as big or bigger than Cliff Kushler’s previous company, Tegic. In terms of the acquisition price, Tegic was bigger. So, did you achieve that goal? “I am not trying to compare myself to legacy ghosts in a sense around the financial outcome. What we would like to do is become a ubiquitous input style, and we will be on 100 million devices by the end of the year, and when combined with Nuance, I think us reaching that one billion unit level is a goal I have aimed for, and that has become far more easier to achieve. The Swype brand will continue on, and I think it is a very large legacy that we can be proud of.”
On the role of Swype inventor Cliff Kushler’s role in the success of Swype: “There are very few people in technology where lightning strikes twice, especially something goes on for a billion unit level distribution. Maybe some of Gates’ software or Jobs’ software, but beyond that not too many people have shipped software in the billions of units.”
Are all of the employees from Swype joining Nuance? “We are becoming a wholly-owned subsidiary, so yes all of the employees are transitioning. As to future integration plans, we have not gotten into that level of detail with Nuance.”
And you will move to the Nuance offices in Pioneer Square? “Yes, I think they are just five blocks south of us. The goal (is to move) as quickly as possible. But there are IT integration issues, but I think over a period of months. But, starting Monday, we will have teams working on each other’s sites and sharing mornings and afternoons. Given Cliff’s background and our former Tegic folks, they have friends who they’ve worked with who are still there 10 years later. There’s already a cross pollination of known people and contacts…. Nuance now has, I think, over 200 employees in Seattle and they plan on doubling down and having Seattle as one of their tech centers.”
It has been a heated rivalry between Nuance and Swype. Will this be a good cultural fit? “Anytime you are out in the market competing with someone you have to build up some competitive spirit, so yes, we have been against each other in the marketplace. But, at the end of the day, we want to build a great product and they have a lot of assets — they support 80 language and we only support 50, they’ve got speech and we’ve never had that — so the way we integrate the two products is what is going to produce the best results. We’ve got great engineers and that’s what we want to do.”
Was Swype profitable? “We had a couple of profitable quarters last year. As we started hiring more to speed growth, we dipped out of profitability. We grew quickly to handle customer demand. We have 18 signed customers, including 9 of the top 11 phone OEMs and three of the top four PC OEMs.”
You have about 75 million installations of Swype and are heading toward 100 million. What percentage of that is Android? “Oh, 90 percent, plus.”
Isn’t that a challenge being so dependent on Android and not being able to diversify into Windows Phone or Apple’s iOS? “WinPhone and iOS don’t allow third-party keyboards. We are on Meego, and when Nokia dropped Meego, that was concerning to us and to our potential install base. We are on Symbian, and that is shifting in a a different direction…. You are seeing a growing dependence on OS platforms, and unfortunately some of them don’t allow third party software to play in certain areas.”
Did the inability to be on the iPhone or Windows Phone impact the business or the valuation and effect your decision to sell? “I guess it goes into the overall risk-reward consideration as we were contemplating the sale. Yes, it is concerning that we are not on WinPhone or iOS. And what if (Android) were to ever shut down their keyboard APIs and what would do that to our business? It plays into the overall consideration, I guess.
Because of the acquisition could Swype get on the iPhone? “I can’t answer that. I don’t know. It certainly seems that Apple and Nuance have close relationships on a number of technologies.”
What’s the deal mean to employees of Swype? “It is a great outcome…. I started just over three years ago and we built up a substantial company and every single employee in the company is going to have options that have value. And we had a hell of a team create this product. I think it is something that we can all be proud of.”