Microsoft’s giant purchase: The tech giant announced its second-largest acquisition ever on Monday: a pending $19.7 billion deal to swoop up Boston-area company Nuance Communications, a longtime leader in artificial intelligence-fueled speech technology.
Why Nuance: The deal reflects Microsoft’s continued bet on healthcare. Nuance specializes in “conversational AI” for applications in hospitals and doctor’s offices; 77% of U.S. hospitals are Nuance customers.
“Nuance has huge reach among doctors and other health professionals, who will spend multiple hours on it per day,” said Chrissy Farr, a health tech investor at OMERS Ventures. “It’s also deeply integrated with the largest health IT players, including the electronic medical record companies.”
Microsoft has teamed up with Nuance in the past on healthcare-related deals to automatically create documents in the electronic health record (EHR) following a healthcare visit. Nuance already uses Microsoft’s Azure cloud computing platform, and Nuance’s ambient technology software DAX is integrated with Microsoft Teams.
“This acquisition brings our technology directly into the physician-patient loop, which is central to all healthcare delivery,” Microsoft CEO Satya Nadella said on a call with analysts Monday.
More from Nadella: The CEO also noted the pandemic-driven digital acceleration transformation “driven by industry-specific cloud solutions.”
“It’s now very clear that healthcare organizations that accelerate their digital investments can improve patient outcomes and reduce costs at scale,” he said. “Advances such as AI will have an enormous impact on augmenting human capability in healthcare. AI is technology’s most important priority, and healthcare is its most urgent application.”
Last year Microsoft rolled out Microsoft Cloud for Healthcare. It also has an AI for Health initiative.
Nadella said the Nuance deal will increase the company’s total addressable market in healthcare to nearly $500 billion. He also noted applications for Nuance’s tech beyond healthcare such as enterprise AI and biometric security.
“A perfect fit”: That’s how Xealth CEO Mike McSherry described the deal for Microsoft. McSherry leads Seattle healthtech startup Xealth and sold Swype to Nuance for $100 million in 2011. He said tech giants including Microsoft, Amazon, and Google have dabbled on the edges of healthcare with horizontal solutions but haven’t earned meaningful revenue.
“Healthcare usually requires verticalized solutions given all the regulatory, workflow, and privacy-related requirements to meet the needs and find customer traction,” said McSherry, nominated for CEO of the Year at the GeekWire Awards. “This could be a longer term attempt for Microsoft to reinvent EHR starting with a voice-first approach.”
“A trophy for Redmond”: That’s the reaction from Dan Ives, an analyst with Wedbush Securities, noting that the deal represents a “unique asset” for Microsoft.
“The Nuance deal is a strategic no-brainer in our opinion for Microsoft and fits like a glove into its healthcare endeavors at a time in which hospitals and doctors are embracing next generation AI capabilities from thought leaders such as Nuance,” Ives wrote in a research note.
Ives expects no major regulatory hurdles for Microsoft. He added that the company is on the “M&A warpath over the next 12-to-18 months,” citing recent reports of Microsoft’s interest in buying Discord and its $7.5 billion acquisition of ZeniMax.
Cloud business boost: The deal should add even more growth to Microsoft’s cloud arm. The company’s revenue climbed 17% to more than $43 billion for the December quarter, and profits rose 33% to $15.5 billion, eclipsing Wall Street’s expectations amid growing demand for its cloud services.
Among the company’s three main business divisions, the biggest revenue increase came in the Intelligent Cloud segment, up 23% from the prior year to $14.6 billion. Microsoft expects Nuance’s financials to be reported as part of the Intelligent Cloud segment.
Strong Seattle ties: Nuance already has a large presence in the Seattle region near Microsoft’s HQ as a result of several acquisitions including VoiceBox, Swype, Tweddle, Varolii, and Jott. Nuance in February acquired Saykara, a Seattle health-tech startup that makes a voice assistant for clinicians.
John Pollard, a Seattle tech vet and co-founder of Jott, said he was “psyched” for Nuance. He noted how the company has been shedding other business lines such as mobile and automotive — “and it looks like it really paid off,” Pollard said.
