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1Mby1M Deal Radar 2011: VirtuOz, Emeryville, California, And Paris, France

Posted on Monday, Apr 11th 2011

The February 2011 victory of IBM’s Watson, a “question-answer computer,” over two human competitors in the popular trivia game show “Jeopardy” was a milestone in artificial intelligence that caught the attention of scientists and the general public alike. Today’s Deal Radar company, VirtuOz, points to Watson’s humanlike reasoning capabilities as a testament to the viability of natural language processing (NLP) for commercial applications. VirtuOz provides intelligent virtual agents (IVAs) for customer service and sales to large and mid-market enterprises. The agents are designed to be an online channel for improved access to customer service and a high-quality user experience that avoid the high costs associated with traditional customer service channels such as search and human agents.

While cost effective on the surface, search functionality uses keywords and indexing and may present users with too many potential answers, forcing them to hunt through a growing list of search results or attempting refinement to get what they need. Search cannot adequately understand that a user community can ask the same essential question 100 different ways, each member looking to be directed to the same “one right answer.” Finally, search is not optimized to answer conversational questions. For example, it cannot respond to someone with an allergy on a consumer website asking, “Which products do you sell that do not contain nuts?” FAQs may also not provide the answer. According to Forrester, traditional self-service options such as FAQs and search result in successful resolution only about 50 percent of the time. Unanswered questions are escalated to a higher cost channel, causing the total cost of resolution to skyrocket.

On the other end of the spectrum are service channels staffed by actual people, who offer a more personal experience and higher resolution rate but at much higher cost out the gate. Further, use of human agents is often accompanied by longer wait times or limited hours of service, which is less attractive to today’s online-savvy consumer. One recent Forrester study suggests that only 29 percent of users today want to engage with a live person to address their service needs.

Under increasing cost pressures, customer service functions are often forced to trade off between offering the most compelling customer experience and the cost to serve. Companies are looking for a contemporary online channel that combines the benefits of self-service with the effectiveness of a human service channel at a cost that provides a high ROI – VirtuOz says that IVAs are one-tenth the cost of other service channels.

When VirtuOz was founded in 2002, virtual agents and artificial intelligence were still considered a holy grail of sorts; the kind of technology for scientific use or for only the most progressive of companies. Since then, several factors have pushed virtual agent technology to the forefront, such Watson’s “Jeopardy” win. VirtuOz believes that Watson’s ability to comprehend complex conversations and respond both quickly and accurately, as a human would, shows that NLP does not just have potential; it is a viable technology with many possible commercial applications.

At the same time NLP has been coming of age, a consumer-led revolution has been occurring. An increasingly greater number of users, including but not limited to digital natives, consider blogging, texting, tweeting, e-commerce, and social networks a way of life. The confluence of these two events has given rise to the commercial use of IVAs in the customer service field, with benefits for both consumers and businesses.

According to Gartner Research, “Virtual agents are slated to become the industry standard within three to five years.” VirtuOz is initially targeting 3,500 companies in the following consumer-oriented verticals: consumer high-tech, consumer packaged goods, food and beverage, e-commerce, retail, financial services (banks, payment processors and insurance), travel & hospitality, consumer services, utilities, and telecommunications. The company says that VirtuOz is best suited for high-traffic websites that have 1 million or more monthly visitors.

What are virtual agents, exactly? VirtuOz describes them as SaaS computer programs designed to interact with users, interpret their input, and programmatically guide them toward resolution of specific issues. The path users take is based on the answers they give and the specific business logic programmed into the agents by the VirtuOz customer. Customers can program agents to gather information from users, and based on users’ input, agents will clarify what customers want, can extract information from other enterprise systems, suggest a solution, or pass users on to a live agent, if necessary.

VirtuOz has the largest number of live enterprise virtual agents for Global 2000 companies such as eBay, SFR, H&R Block, and L’Oréal. Last year, the company processed a record 144 million conversations. Conversations are sessions based, and the average conversation includes about six questions and answers between the user and the virtual agent.

Pricing is based on an annual subscription model and determined by the number of conversations processed annually. Depending on the scope of the virtual agent’s mission, pricing begins at $120,00 annually. The subscription includes monthly virtual agent optimization (VAO) services delivered by VirtuOz’s domain experts; these services ensure the continuous improvement of the virtual agent over time and monitor its performance to ensure it meets or exceeds KPIs and ROI targets.

The company was co-founded by vice president Alexandre Lebrun. As an avid technologist with fervor for languages, Lebrun was looking to create innovative software that melded his two great passions in life. So, he built an advanced natural processing engine that would excel at modern online conversational modes – short phrases, incomplete sentences, abbreviations, misspellings – and predictive intent, which would later become the foundation upon which VirtuOz’s intelligent virtual agents were built. The company’s CEO, Steve Adams, has more than 20 years of experience building and leading large and small fast-growth technology companies. Prior to joining VirtuOz, he served as president and CEO at Sabrix, was CEO at Uniscape, and was responsible for worldwide marketing at Novell and Citrix.

VirtuOz has raised a total of $13.5 million thus far: a $2 million Series A in 2005 and an $11.5 million Series B in 2008. It plans to seek additional funding in late 2012/early 2013 from growth investors. Annual revenues are $6 million to $10 million.

Competitors include noHold; founded in 1999 and focusing on both services and sales virtual agents; NextIT, which offers its ActiveAgent as a hosted or on-premise solution; and Artificial Solutions; which positions its technology, Teneo, as an integrated customer interaction suite across e-mail, chat, mobile, business intelligence, and so on. VirtuOz says that its managed service approach, going beyond client support, and its sharp focus on predictable and measurable results, are what set it apart.

VirtuOz offers a global direct sales channel complemented by partnerships with Web customer service vendors, other service channel vendors (such as live chat and ERMS), and call center business process outsourcers (BPOs) that expand its market reach and access. While VirtuOz began by offering point solutions for IVAs as a new online customer service channel, the company is now working with many customers to use the IVA as the first point of contact for all online customer interaction, which is critical for establishing digital customer relationships.

The company plans to continue to invest its products and services. In addition, while VirtuOz is privately held, management says that it run the business like a public company, using financial audits and other reporting and measuring tools, so that when they reach their profitability goals, they will have several options for liquidity.

Recommended Readings
The 1M1M Deal Radar 2010: Imagination Engines
The Audacity of Tom Costello

This segment is a part in the series : 1Mby1M Deal Radar 2011

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