Speech recognition software may have long since lost its “next big thing” reputation on the PC, but could it finally have found a vocation as the alternative to awkward software keyboards on smartphones?

Nuance’s Dragon Dictation on the iPhone certainly suggests so. This highly impressive app transcribes spoken messages that can be quickly exported to SMS, email, Facebook or Twitter updates at the touch of the button.

As with the voice search built into the Google iPhone app, the hard work takes place on the company’s servers, not the iPhone itself.  Voice messages are recorded and sent to Nuance’s servers, and the transcript arrives back on your handset a few seconds later – provided you’ve got a data connection. Not only does utilising vastly more powerful server hardware allow Dragon to improve the accuracy of transcriptions,   it keeps the app nice and lightweight at only 4.4MB.

Speech recognition software lives or dies by its accuracy, and Dragon confidently avoided a death warrant in my tests. Most of the one or two sentence messages I dictated were transcribed with only the odd error, which considering the software requires no training whatsoever and relies on an iffy iPhone microphone, is no small achievement.

Even when errors do occur, they can normally be corrected with minimal fuss. Dragon offers an onscreen keyboard to put mistakes right, but that’s often surplus to requirements, as clicking on an erroneous word produces a drop-down list of alternatives that more often than not contains the desired phrase, as you can see in the screenshot below:

Particularly impressive is the way Dragon handles numbers. In the example below, I spoke the words “ten thirty” and “twelve”, both of which were formatted correctly in the context of the message:

Likewise, in the message below, “eight” could easily have been mistranscribed as “ate” and “two thousand and eleven” is correctly identified as a year, suggesting some sophisticated contextual analysis is taking place:

Dragon does have a (perhaps forgivable) weak spot when it comes to names. Poor Nicole from the PC Pro office was turned into Nickel, Dell became hell, and it made an almighty mess of an “Ofcom press conference”. Curiously, Dragon asks if it can upload names from your phone’s address book to help improve accuracy, but yet it still transcribed “Tim Danton” as “Tim Denton” and didn’t offer the correct spelling of our esteemed editor’s name as an alternative.

Dragon doesn’t go as far as other iPhone speech recognition apps, either. With Dragon you still have to enter the name of email or text message recipients using the keyboard, while apps such as Vlingo allow you to speak instructions such as “Email Tim, subject trains, message I’m going to be a bit late this morning” and have the whole process automated, albeit for a charge.

The app is also woefully short on user instructions. You’re thrown straight in at the deep end, and I only discovered that you could speak punctuation commands such as “full stop”, “open quotes” and “full caps” by trial and error or with a little internet research. (There’s a decent guide to the Dragon commands here).

Is Dragon “up to five times as faster” than using the onscreen keyboard, as its iTunes blurb claim?  No, not in my experience. Twice as fast, once you’ve corrected the odd error, is probably closer to the mark.

But considering you’re getting that for free (at least temporarily, if the rather ominous warning on Nuance’s website is anything to go by), twice as fast is more than good enough for me.

Want more iPhone apps? Read our 73 best iPhone apps feature here.