Microsoft's Nuance Acquisition Underscores AI Opportunity in Healthcare

Microsoft has upped its bet on the healthcare industry with its recent acquisition of conversational AI systems provider Nuance Communications. The two companies have entered into a definitive agreement, they announced last week, in which Microsoft will acquire the Burlington, Mass.-based Nuance for $19.7 billion. Boards of both companies unanimously approved the deal, which is expected to close this calendar year. Only Microsoft's $26.2 billion payment for LinkedIn in 2016 was larger in dollar terms.

Probably best-known for its Dragon Naturally Speaking voice-to-text solution, Nuance actually offers a broad portfolio of AI solutions, including optical character recognition (OCR), and its technology was used in the original backend for Apple's Siri virtual assistant. Recently, through divisional sales and repositioning, the company has been refining its focus to provide speech recognition and transcription solutions for healthcare and enterprise AI. The company's product portfolio includes Dragon Ambient eXperience, Dragon Medical One, and PowerScribe One for radiology reporting, all of which are clinical speech-recognition platforms run as SaaS offerings atop Microsoft Azure.

Microsoft's messaging about the deal focused on AI opportunities in healthcare.

"Nuance provides the AI layer at the healthcare point of delivery and is a pioneer in the real-world application of enterprise AI," said Microsoft CEO Satya Nadella, in a statement. "AI is technology's most important priority, and healthcare is its most urgent application. Together with our partner ecosystem, we will put advanced AI solutions into the hands of professionals everywhere to drive better decision-making and create more meaningful connections, as we accelerate growth of Microsoft Cloud for Healthcare and Nuance."

According to Microsoft, the deal doubles Microsoft's total addressable market in the healthcare provider space, where Microsoft is competing for attention and dollars with Amazon Web Services (AWS) and Google.

For Microsoft, the healthcare-specific AI reinforces the company's Microsoft Cloud for Healthcare and other moves in the sector. Microsoft also plans to leverage Nuance's experts and technologies in interactive voice response (IVR), virtual assistants, and biometric solutions.

In addition to the Azure foundation for Nuance's SaaS products, the companies are already technologically intertwined. They announced a major partnership in 2019 for joint work on the Nuance Dragon Medical platform and on Microsoft's Project EmpowerMD Intelligent Scribe Service, as well as underlying Azure technologies.

Mark Benjamin, who will remain CEO of Nuance, reporting to Scott Guthrie, the EVP of Microsoft's Cloud and AI group, said the deal is important for the continued growth of Nuance's business.

"To seize this opportunity, we need the right platform to bring focus and global scale to our customers and partners to enable more personal, affordable and effective connections to people and care, Benjamin said. "The path forward is clearly with Microsoft -- who brings intelligent cloud-based services at scale and who shares our passion for the ways technology can make a difference. At the same time, this combination offers a critical opportunity to deliver meaningful and certain value to our shareholders who have driven and supported us on this journey."

The all-cash transaction represented a 23 percent premium to Nuance's closing price on Friday, April 9.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.