Microsoft (Nasdaq: MSFT) 
on Thursday said it has acquired privately owned Colloquis, a provider of conversational online business solutions that feature natural language-processing technology. The company's software lets customers send Instant Messages that retrieve conversational answers through artificial intelligence programs.
The deal will allow Microsoft to offer new services to businesses with online operations, as well as incorporate Colloquis technology into its own products. Terms of the deal were not disclosed.
"Today's 'anytime, anywhere' world has established a standard of instant and easy access to all forms of information, media and content," said Steve Berkowitz, senior vice president of the online services group at Microsoft.
Live Chat, Microsoft Style
The acquisition gives Microsoft tools and a platform it needs to build conversational capabilities into its software, Berkowtiz added. Microsoft is clearly preparing to get more aggressive in a CRM market that IDC predicts will reach US$11.4 billion by 2008.
Initially, Microsoft will offer a managed service called Windows 
Live Service Agents based on the existing Colloquis Automated Service Agent offering.
Windows Live Service Agents provides businesses with a hosted Web-based customer service application that interacts with end users in conversational language. Windows Live Service Agents will augment Microsoft's existing contact center solution, Microsoft Customer Care Framework, the company said.
"This acquisition will give Microsoft a greater repertoire of tools and technologies that enhance the customer experience online, and it will do it in a variety of ways," Yankee Group analyst Sheryl Kingstone told CRM Buyer. "Most importantly, it will help Microsoft provide more dynamic information so that the customers find the answers they are looking for."
Leveraging Success
Colloquis has a successful track record with its natural language technology. Cingular Wireless , Comcast (Nasdaq: CMCSK) , Cox Communications, Panasonic , Time Warner (NYSE: TWX) Cable and Vonage (NYSE: VG) are among its customers.
"The telecom sector is trying to move towards a better customer experience online partly because of the economics of customer self-service," Kingston noted. "We haven't made customer self-service work and we really have to make it work for the customer and for companies."
Indeed, most attempts at end-to-end customer self-service have failed. Natural language technologies offer a more flexible approach that could change all that. Microsoft has the programming power to experiment with new offerings.
Xbox: The Guinea Pig
Microsoft first plans to experiment with its Xbox system, making this the first group within Microsoft to use Windows Live Service Agents. The service will offer customers another approach with which to address commonly asked questions about the popular gaming system.
The Colloquis product's technical flexibility makes it an excellent fit with other self-service options that Xbox plans to release in the fall, Microsoft said. Video game users may be more inclined to try the new technologies by virtue of their tech-savvy nature, the company said.
Microsoft also plans to take advantage of Colloquis Internet bot technology in an application called Windows Live Agents, a conversational application users can interact with via Windows Live Messenger. These "agents" are used to entertain, encourage engagement with products or services, provide new advertising opportunities for brand advertisers, and drive search and information retrieval.
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