Microsoft targets cloud AI boost with $19.7B Nuance deal

Microsoft inked a $19.7 billion deal to acquire artificial intelligence (AI) software company Nuance Communications, spending big to boost its cloud capabilities in healthcare and beyond.

The all-cash deal is the second largest in Microsoft’s history behind its $26.2 billion purchase of LinkedIn in 2016, and is expected to close by the end of 2021.

Nuance offers a range of AI-enabled speech recognition products for the healthcare industry under its Dragon Medical platform, which aims to ease clinical documentation and reporting. It also offers biometric authentication and customer engagement technology.

Microsoft said the purchase will double its total addressable market in the medical segment to nearly $500 billion, and provide a substantial boost for its industry-specific Cloud for Healthcare offering, which launched in October 2020. 

It noted Nuance's technology is already used by more than 55% of physicians and in 77% of U.S. hospitals. On a call with investors, Microsoft EVP of cloud and AI Scott Guthrie explained the tie-up will enable “dramatic global scale for Nuance technology,” expanding its reach beyond the U.S. But he added “it is also clear that this technology can be applied beyond healthcare” to other cloud-based services.

“We can bring this understanding of conversations to other industries,” he said. “Think about conversations you could have with your financial advisor, where ambient AI could document the plan and suggest next steps to your financial advisor. Nearly any professional service could benefit from real-time engagement converted into material intelligence that drives actions.”

Guthrie also noted biometric security capabilities offered by Nuance could be used to enhance Microsoft’s fraud prevention products.

Microsoft has made a number of acquisitions over the past year to strengthen its cloud capabilities.

Last month, it announced a deal to purchase The Mardsen Group to boost its prototyping capabilities for new cloud, edge and AI products. In 2020, it notably inked back-to-back deals to acquire software companies Affirmed Networks and Metaswitch to boost its ability to offer cloud-native, telco network solutions.

The move with Nuance could provide a further boost for Microsoft’s telco ambitions. During Nuance’s fiscal Q1 2021 earnings call in February, CEO Mark Benjamin highlighted increased demand for its security and biometrics solutions in the telecommunications, financial services and enterprise markets. He also noted it inked a deal to incorporate the company’s voice biometric technology into a password simplification tool called ZenKey launched by AT&T, Verizon and T-Mobile in late 2020.

Benjamin will remain CEO of Nuance after the deal wraps, reporting to Guthrie, with Nuance’s financials reported as part of Microsoft’s Intelligent Cloud segment.