Strategies of Microsoft to buy Nuance in $19.7 bn deal

Analyst firms have revealed strategies of Microsoft to buy Nuance Communications in a $19.7 billion deal.
Microsoft aims to bolster its suite of enterprise applications with the artificial intelligence firm’s advanced speech technology.

In recent years, Microsoft has assigned thousands of employees to its artificial intelligence work and released tools customers can use to build applications that understand and translate speech, recognize images and detect anomalies. The company views AI as a key driver of future sales of cloud services.

Microsoft faces competition in the space with rivals such as Alphabet Inc.’s Google and Inc. also investing heavily in the field.

Conversational platforms is one of the most commonly used artificial intelligence (AI) technologies and one of the most significant themes expected to have a massive impact on all industry sectors.

GlobalData’s Thematic Scorecard for the application software sector clearly shows that both Microsoft and Nuance are strong in the AI theme. Adding Nuance’s capabilities will only increase Microsoft’s AI strength.

“Nuance is very strong in conversational platforms, particularly for healthcare providers, suggesting its expertise will strengthen Microsoft’s enterprise strategy in the lucrative healthcare industry,” David Bicknell, Principal Analyst, Thematic Research at GlobalData, said.

Microsoft’s acquisition of Nuance is a major move into the healthcare AI space. Microsoft is looking to capitalize on a healthcare market that is hungry for better patient outcomes, reduced costs and higher personnel efficiency. COVID-19 has levied a heavy toll on healthcare providers and patients alike.

Nuance’s conversational AI and EHR expertise, coupled with Microsoft’s cloud capabilities, are perfectly positioned to enhance patient care, increase the amount of time physicians spend caring for patients, and ensure seamless coordinated and connected patient care, said David Brown, GlobalData Senior Healthcare Analyst.

Microsoft said that voice was the next big computing platform and predicted that Nuance’s independent platform would appeal to any manufacturer or services company that did not want to be beholden to Amazon or Google.

Research firm TBR said buying Nuance gives Microsoft is an opportunity, but not a guarantee, to sustain growth.

The announced acquisition of Nuance is the culmination of multiple elements of Microsoft’s recent performance, strategy and growth plans. Microsoft has benefitted from the COVID-19 pandemic perhaps more than any other technology vendor.

Aside from an initial downturn in advertising spend that negatively impacted the LinkedIn business, nearly all of Microsoft’s sprawling business units were bolstered by the technology demands of businesses and consumers reacting to the pandemic, says Evan Woollacott, senior analyst at TBR, said.

From a strategy perspective, industry specialization has been a growing focus for Microsoft over the past five years, which is a shift in its mostly horizontal technology approach throughout its long history. Healthcare has been a frequent focus, but so too have retail, manufacturing and financial services specialization.

Microsoft has been searching for the next $10 billion plus growth business. Microsoft Office 365 and Azure are carrying Microsoft’s financial performance to date, but new addressable markets are needed to carry corporate growth and profitability for the next decade.

While Nuance cannot assume that burden, the capabilities Microsoft will acquire will make many of its core technologies relevant to a much wider audience and set of use cases. The purchase of Nuance is similar to that of LinkedIn, with the full value of the investment hinging on successfully leveraging the technology to benefit as many other business units as possible.