SpinVox defense highlights technology but does little to allay financial concerns

By Pamela Clark-Dickson

The UK-based text-to-screen provider SpinVox has been forced to issue two strongly-worded statements on July 23 and July 26, in which it defended its technology platform and the way that it offers its speech-to-text services.

However, the privately-owned SpinVox, which is backed by venture capital from companies such as Goldman Sachs, GLG and Ariadne Capital, was less forthcoming about its financial position, leaving itself open to speculation that it is representing itself in the best possible light ahead of the execution of an exit strategy by its founders and investors.

SpinVox’s July 23 statement largely rebutted claims made by the BBC’s technology correspondent Rory Cellan-Jones, which centered on the level of automation of the SpinVox service, and whether its use of human agents in call centers not only contravened EU data privacy legislation but was also proving to be an unsustainable cost for the company.

It should come as no surprise to anybody who is familiar with SpinVox or its technology that its service is not 100% automated. Co-founder Daniel Doulton told Informa Telecoms & Media over a year ago that human agents are necessary for quality control, to “confirm” messages and as back-up in the event of a system failure. Essentially, the VMCS platform calls an agent when it comes across a word of a phrase that it doesn’t recognize, so that rather than transcribing the whole message, the agents confirm a message that has already been processed.

SpinVox went to great lengths in the July 23 statement to explain that the company is compliant with all relevant data privacy requirements, including the Data Protection Act 1998, and that its services are ISO-certified. In its July 26 press statement, SpinVox also provided additional detail about its Voice Message Conversion System (VMCS) automatic speech recognition platform, claiming that improvements to its accuracy levels over the last two years has resulted in a reduction of its human Quality Control agents to “a few hundred” per market, compared with the “thousands per market” when its launched its first service in June 2007 with US cellco Cincinnati Bell. This is significant, in that the higher the level of automation of a service, the more profitable that service is likely to be. However, Informa understands that SpinVox is still paying about 3,000 human agents for message conversion services; clearly this still represents a significant cost to the company.

The fact that SpinVox has been able to so quickly and comprehensively respond to the BBC’s story suggests that its house is largely in order when it comes to its technology platform and the way that it provides its services. Indeed, had SpinVox not adequately addressed these items before it made its service commercially available, it is unlikely that the company would have progressed beyond the due diligence stage to win contracts with the ten publicly-announced mobile operator customers who have launched or are scheduled to launch SpinVox services (or 23 cellcos in total if the operating companies of recent contract win, Telefonica Moviles in Latin America, are also included).

However, SpinVox has been less clear about its finances; the company devoted just four paragraphs at the bottom of the five-page missive it issued on July 23 to addressing points raised by Cellan-Jones. At the end of the statement dated July 26, just five paragraphs were taken up with the co-founders Christina Domecq and Daniel Doulton, and Julie Meyer, from SpinVox backer Ariadne Capital, making general statements about the health of the business.

Financial transparency

The lack of financial transparency speaks volumes; surely if SpinVox has nothing to hide, then it can afford to be as forthcoming about its finances as it is about its technology. SpinVox is clearly drawing on one of the benefits of being privately-owned, in that it is not required to publicly disclose its financial results, so there is no real visibility on its balance sheet.

Neither of SpinVox’s press statements confirmed the wording of an e-mail that Domecq, also SpinVox’s CEO, is alleged to have sent SpinVox staff in early July, requesting that employees take some or all of their pay in July and August as share options, adding that the targeted £1 million (US$1.6 million) in savings would help tip the company into profitability. The July 23 statement merely claimed that the company is operating profitably, that offering its employees share ownership is routine and that the offer had been taken up by more than 50% of the company.

But if all is indeed well with SpinVox, and if the company is already profitable, it begs the question as to why Domecq asked employees to sacrifice all or part of their salaries over a two-month period in order to help SpinVox reach profitability – especially when the company secured US$100 million in venture capital finance from Goldman Sachs in March 2008.

Informa understands that at end-2007, SpinVox reported that it made a loss of £36.3 million on revenues of £2 million, though revenues increased about 350% on its 2006 revenues of £436,000. In 2008, the company secured a number of mobile operator customers, but for each of these it would also be accruing higher costs.

What should also be of concern is whether SpinVox has been spending money in the wrong places. For example, Domecq has admitted in an interview with Paid Content UK that the company flew all of its employees to London for a summer party in 2008, which was held on a boat on the Thames River. While good for employee morale in the short-term, the expense associated with this kind of jolly seems excessive for what is essentially still a start-up company that is relying on venture capital.

Similarly, it’s questionable whether there has been sufficient return on investment from likely costly brand-building initiatives such as purchasing relatively high-profile stand space at industry trade shows, not to mention merchandising, such as the SpinVox dolls that were displayed on its booth at the recent Mobile World Congress and presumably given away to attendees. Among other projects and causes, SpinVox is a sponsor of the Institute of Contemporary Art in London, and its Figures of Speech fund-raising gala which was held for the third year in May. Were all of these expenses really necessary to grow the business?

In the interests of full disclosure, I have a SpinVox trial account, and I have found it useful, though recently I have been concerned about the increasingly garbled nature of the messages I am receiving, the fact that I have received messages which were not intended for me, and also the considerable time lag between when I get the converted/transcribed message as an e-mail versus as an SMS. I’m not too concerned about receiving garbled messages or the time lag, but I am a little worried that I’ve been receiving messages meant for others, since I would assume that messages meant for me are being similarly misdirected; if this is indeed the case, then it should be an additional concern for SpinVox.