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Microsoft to acquire Nuance in $19.7 billion deal

The all-cash acquisition will give Microsoft access to Nuance’s healthcare-focused dictation technology, as Microsoft continues to expand its role in the healthcare market.

Microsoft entered into a definitive agreement to acquire voice recognition and AI vendor Nuance Communications in a $19.7 billion all-cash deal, the companies said on Monday.

The acquisition will help Microsoft grow its healthcare business as it takes control of Nuance's speech recognition and transcription software.

"We have long argued that 2021 would be the year that the cloud providers invest heavily in industries, but Microsoft's acquisition of Nuance is by far the biggest bet we have seen yet when it comes to this key trend," said Nick McQuire, chief of enterprise research at CCS Insight.

Organizations want more from cloud providers

Enterprises have demanded more from their cloud providers, particularly involving domain expertise and industry applications, after the COVID-19 pandemic brought on structural changes, McQuire said.

"That is what has ultimately forced Microsoft's hand here, particularly in the wake of the launch Microsoft Cloud for Healthcare," he added.

Nuance is considered a leader in the healthcare transcription market, after it made significant investments in recent years in its health IT products. The vendor also sells voice recognition products for consumers and other markets.

Based in Burlington, Mass., the vendor's medical software includes Dragon Medical One, a cloud-based speech recognition program that enables physicians to dictate patient notes to a secure platform.

Nuance's Dragon Ambient eXperience (DAX) records and transcribes conversations between physicians and patients. The platform automatically converts the conversation into structured notes that go through a human review process to ensure accuracy and HIPAA compliance.

Its healthcare products integrate with popular EHR products, and auto-populate patients' medical records in the system.

In February, Nuance acquired startup Saykara, vendor of an automated transcription service for physicians, to advance the DAX system.

Vendors had been partners

Microsoft's acquisition of Nuance builds on an existing partnership between the two software companies. Nuance's cloud-based platform runs on Microsoft Azure, and Microsoft had integrated Nuance products into its Microsoft Cloud for Healthcare, a healthcare-focused cloud offering launched last year.

With this acquisition, Microsoft aims to further integrate Nuance software into Microsoft Cloud for Healthcare, the technology giant said.

"Nuance brings to the table not only an attractive set of healthcare customers in AI, which in itself is a huge bet for Microsoft," McQuire said. "But it also brings deep domain expertise as well, and this has been the missing ingredient for Microsoft until now."

Nuance's mature set of AI systems in areas including speech recognition, document processing, fraud detection and image recognition "will ultimately prove key to differentiating Azure to healthcare customers against [Microsoft's] largely horizontal competitors," he said. 

In addition to its healthcare products, Nuance sells transcription and voice security software for call centers, legal offices, law enforcement and consumers.

Looking beyond health IT

Beyond healthcare, Nuance provides AI expertise and customer engagement technologies including interactive voice response, virtual assistants, and digital and biometric systems to companies around the world across all industries, said Ritu Jyoti, program vice president for AI research at IDC.

"This expertise will come together with the breadth and depth of Microsoft's cloud, including Azure, Teams, and Dynamics 365, to deliver next-generation customer engagement and security solutions," she noted, referring to Microsoft's collaboration and customer relationship management systems.

Microsoft has accelerated its efforts to offer industry-specific cloud offerings to its customers, Jyoti said. So, while Microsoft may focus on healthcare with its Nuance play now, it will likely branch out.

Nuance was one of the original developers of Apple's Siri voice recognition technology, supplying software that helped process questions to Siri.

It is unclear if Microsoft has plans to use Nuance to work with Cortana, Microsoft's personal productivity assistant. Microsoft, however, ended support for Cortana on iOS and Android devices at the end of last month, and ended Cortana support on smart speakers earlier this year.

Microsoft's acquisition of Nuance, its biggest buy since purchasing LinkedIn for more than $26 billion in 2016, will see Microsoft pay $56 per share.

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