Red Herring 100: Phone Numbers

Making a profit during an industry-wide recession gives Tellme Networks big dreams.

May 23, 2005 Print Issue

Mike McCue will look you straight in the eye and tell you his company has no interest in going public at least, not yet. It’s not that Tellme Networks, where Mr. McCue is CEO, has a balance sheet too weak for Wall Street. In fact, he’s grown Tellme from $5 million in 2001 revenue into a $100-million-plus juggernaut of a voice platform and networking company that became profitable in the second half of 2004.

Mr. McCue wants Tellme to continue its torrid growth, and he’s concerned that millions of shareholders might make his job tougher. We like being private, says Mr. McCue, a jeans-wearing chief executive with the sort of happy-go-lucky attitude that comes from growing a business by leaps and bounds during an industry recession. We can make bold, risky decisions, and not have our stock price hammered.

He will have to make risky decisions to fulfill Tellme’s outsized ambition to be a part of every phone call on Earth. To make this happen, Mr. McCue’s team has built a web browser for the phone, replacing HTML with VoiceXML and substituting VoIP for HTTP.

Hereís how it works: a customer of a Tellme client, such as Merrill Lynch, calls 1-800-MERRILL. The call is routed to Tellme’s network, which translates English language voice commands into VoiceXML and talks to Merrill Lynch’s own computer system. Tellme’s network transfers the data, such as account balances and credit card information, between the caller and the company’s servers.

Because these calls save companies hundreds of thousands of dollars that would be spent on human operators and their own telecom networks, dozens of large enterprises, including Federal Express and Cingular Wireless, count themselves among Tellmeís clients.

The company estimates that of 1 trillion phone calls placed each year in the United States, 20 billion go to large enterprises and 100 billion go to 800 numbers of mid-sized enterprises. Already, 35 million Americans make calls through Tellmeís network each month.

Because only a few 800 numbers co-brand with Tellme, the vast majority of those callers have no idea that the company is powering the back end they just think they’re calling their bank, airline, or directory assistance. Yet Mr. McCue insists that the quality of those calls and the money saved is what keeps enterprise clients coming back.

That Apple-like focus on user interface began with the company’s founding, when Mr. McCue and Angus Davis, now a Tellme director, quit Netscape in 1999 to start the company. Tellme’s voice portal number, 1-800-555-TELL, was built on the same technology as its current core business, but had a different goal: to become the Yahoo of the phone. Tellme scored $238 million in venture capital from heavyweights like John Doerr of Kleiner Perkins. The company expected that people would call for movie tickets or make trades on eBay, but the idea proved ahead of its time.

By late 2001, it became clear that Tellme would have to change tack. After making a sale to AT&T’s 555-1212 directory assistance, Mr. McCue had an A-ha! moment. I said: Let’s go where the phone calls are today, not where they’ll be tomorrow, recalls Mr. McCue. With so many companies looking to cut costs, it worked. Tellme signed up MCI and other service providers as Mr. McCue focused on cash flow position and profitability.

Four years later, with the rise of location-based text messaging services like 4INFO and Google Local, the times have finally caught up with Tellmeís original plan. Mr. McCue is pushing to enhance the company’s public face, renewing the concentration on 1-800-555-TELL. Along with Google, Yahoo has once again become a potential Tellme partner.

Other partners include voice-related software companies like TuVox, which once might have been rivals, but are now key builders of applications that run on Tellme’s network. The Tellme Studio application platform already has 25,000 developers.

Mr. McCue also wants to continue expansion among mid-sized enterprises, where competitor BeVocal has a strong foothold. Tellme is coy about its future plans, but Mr. McCue is clear about its broad vision. If you want to know what weíll do next, he says, just ask yourself: where are the phone calls?

Tellme Networks

ADDRESS 1310 Villa St.

Mountain View, CA 94041

PHONE 1-650-930-9000

http://www.tellme.com

FOUNDED 1999

CEO Mike McCue

EMPLOYEES 300

FUNDING $238 million, 4 rounds

KEY INVESTORS AT&T, Benchmark Capital, Ignition Partners, Kleiner Perkins Caufield & Byers, The Barksdale Group

Full article can be viewed here:

http://www.redherring.com/Article.aspx?a=12090&hed=RH-100%3A+Phone+Numbersßor=Regions&subsector=Americas

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