Microsoft will acquire Nuance Communications for $19.7billion, but there’s more to it than cool tech. There’s a much bigger game being played.
We’ve spoken numerous times on the VUX World podcast about how we wouldn’t be surprised to see Microsoft make some acquisitions in the voice and conversational AI space. However, we expected it to be a much smaller acquisition of a start up tooling provider like Artificial Solutions that would enhance the usability of Microsoft’s Cognitive Services. Either that or a startup tech firm like Speakeasy AI that would improve the accuracy of Microsoft’s ASR/NLU.
The fact that Microsoft opted for the largest, most experienced speech technology company outside of the big four is, on the face of it, surprising. Yet, when you dig a little deeper, it makes perfect sense. However, the aims behind the acquisition aren’t what most of us would initially think (or would like to think).The fact that Microsoft opted for the largest, most experienced speech technology company outside of the big four is, on the face of it, surprising Click To Tweet
Why is Microsoft acquiring Nuance? The theory
There are a number of reasons why you’d think Microsoft would want to acquire Nuance.
At first, you’d be forgiven for thinking that this is a pure technology play. Nuance has bucket loads of enterprise grade technology that has been standing the test of time for generations. Taking that and using it to bolster the Azure Cognitive Services stack would seem logical.
2. Staff and skills
Then, you’d probably consider the staff, knowledge, skills and talent at Nuance. Some of the most experienced and talented people in speech technology outside of Microsoft, Google and Amazon work at Nuance. What an addition to the Azure team, right?
Next, you’d consider Nuance’s client base. Healthcare, finance, retail and a whole bunch of industries have been using Nuance technology for IVR, chatbots, transcriptions, dictations and the like for decades. Having a built-in customer base is ideal, isn’t it?
You’d also think about the IP that Nuance has. It’s acquired quite a few companies itself over the last few decades, including Dragon Systems, SpeechWorks, eScription, VoiceSignal Technologies, and Vlingo, and has more than its fare share of patents. Stu Patterson, ex-CEO, SpeechWorks, told the Boston Globe that Nuance:
“… has more intellectual property around speech than anybody on earth”
Think of what Microsoft could do with that IP.
So we first thought the acquisition was a move to take all of the Nuance staff, IP and technology, and roll it all into the Azure Cognitive Services offering which, along with acquiring a bunch of new customers, would position Microsoft as the undisputed global leader in conversational cloud computing.
And that’s likely part of the long term plan. But the short term plan isn’t that.
Why is Microsoft acquiring Nuance? The reality
This deal is not about the Nuance legacy tech or it’s standing in the speech AI industry. It’s not about IVRs and chatbots. Nor is it about bolstering the existing Azure stack, necessarily. This is a play to dominate the AI provision (and, likely, cloud infrastructure) in the forecasted $10 TRILLION healthcare industry in the US, using the relationships Nuance already has as the foundations.This deal is not about the Nuance legacy tech or it's standing in the speech AI industry. It's not about IVRs and chatbots. Nor is it about bolstering the existing Azure stack, necessarily Click To Tweet
Just read this quote from Microsoft CEO, Satya Nadella’s interview with CNBC following the acquisition announcement:
“For us at Microsoft, to bring everything we’ve done in healthcare over the decades, with Nuance, with partners, that’s what this deal is all about.”
This was from Satya’s opening response to the first question he was asked, and it speaks volumes.
This deal is about two things: healthcare AI provision and building on top of the existing partnerships Nuance has with core healthcare system providers.This is a play to dominate the AI provision and cloud infrastructure in the $10 TRILLION healthcare industry, using relationships Nuance already has as foundations. Click To Tweet
First, dominating the healthcare AI market
The Microsoft press release that announced the acquisition has a similar narrative. Titled, ‘Microsoft accelerates industry cloud strategy for healthcare with the acquisition of Nuance’, the clue is in the name.
An industry source, who wished not to be named, pointed out:
“In a 900 word announcement, only a small side note of 57 words is about the other, non-healthcare components.”
So it doesn’t seem like Microsoft is too interested in Nuance’s legacy tech.
A quote from the press release shows the impact Nuance is having in the healthcare space:
“Nuance solutions are currently used by more than 55% of physicians and 75% of radiologists in the U.S., and used in 77% of U.S. hospitals.”
That’s right. 77% of U.S. hospitals use Nuance. This makes Microsoft the leading provider of conversational technologies for healthcare overnight.This makes Microsoft the leading provider of conversational technologies for healthcare overnight. Click To Tweet
Building on Microsoft’s healthcare foundations
Microsoft has already been using its technology to target specific industries such as healthcare, with industry specific cloud offerings, such as its Cloud for Healthcare services. It’s also been working alongside Nuance for some time to power speech technology for doctors on the Azure cloud. So healthcare is an increasingly important focus for Microsoft generally. In that respect, Nuance is the perfect partner.
Nuance is a healthcare company
If we zoom out, we can see two big industry-specific plays at Nuance over the last few years: auto assistants for cars and speech technology for healthcare. The former is now a separate company in Cerence, leaving the latter the focus of the new Nuance; a healthcare technology provider not too dissimilar to Epic and Cerner, only with a focus on voice AI.
One has to wonder whether an acquisition was on the cards for a while. Was that one of the reasons for spinning off the auto assistant portion of the business into Cerence?
So Nuance has been a healthcare company for years. It just happens to have a legacy footprint in other verticals. A footprint with sporadic tooling and technology that many other providers can supply (including Microsoft).
This footprint of tooling and technology, such as voice tech for the contact centre and chatbots for websites, might regrettably end up becoming collateral damage in this deal.The legacy Nuance technology might end up being collateral damage in the Microsoft deal. Click To Tweet
Second, building on partnerships
The second thing this deal is about is exploiting Nuance’s deep partnerships already in place across the healthcare sector. Another quote from Satya in the interview, whilst discussing the potential of business transformation post-pandemic:
“What Nuance and Mark (Mark Benjamin, CEO, Nuance) and team have done is take the most critical part, which is at the point of care, and really transform it with integrations with Epic, Cerner and all the critical EHRs (Electronic Health Record systems)”
Systems like Epic and Cerner EHRs are the bedrocks of the US healthcare system. They’re the systems that manage and store the health records for the majority of citizens in America. Having integrations with these systems shortcuts over a decade of complex work, considerable expense and relationship building, and enables Microsoft to take up the same default provider stance in speech tech for healthcare as it does for enterprise software provision.This enables Microsoft to take up the same default provider stance in speech tech for healthcare as it does for enterprise software provision Click To Tweet
Beyond healthcare: industry-specific expansion
One would naturally draw some conclusions around the future of Microsoft being to continue its focus on industry-specific conversational cloud capabilities, a trend observed by Paul Sweeney, EVP Product, Webio:
“A Conversational Cloud platform is going to dislodge all the pure Voice players, and the transcription players…”
Perhaps, after healthcare, we’ll see a specific offering for the finance sector, another for retail, government and so on. This way, over time, Microsoft will be able to offer a whole conversational cloud solution to any industry.
But there’s also an even bigger win on the horizon.
The bigger picture for Microsoft: cloud dominance
Most organisational transformation is dependent on having the technical infrastructure needed to support it. True automation using conversational AI requires the same, regardless of the industry you’re in.
So many chatbots and voice AI implementations fall short because they are sticking plasters on top of a poor organisational technology stack. A stack that could no doubt be improved if it were moved to the cloud.
This is why we see so many conversational AI deals coming with a cloud migration offering. Just look at the recent Ford announcement to run Google Assistant in its vehicles. It’s more than that. Scratch the surface and, in fact, it’s Ford signing a 6 year Google Cloud Platform deal that’ll see Google’s cloud services and Android provide the infrastructure for Ford’s entire smart vehicle strategy.
We saw the same with Renault-Nissan-Mitzubishi. In 2018, it announced a partnership with Google to have Google provide Android Auto, the Play Store and Google Assistant in its vehicles as part of its mid-term strategy. Two years later, Google sign a company-wide cloud deal that has Groupe Renault move its business to Google’s Cloud.
Microsoft is likely sitting around wondering how it can land more of these multi-year, multi-million dollar cloud deals, and picking up Nuance, and it’s whole host of healthcare customers, as well as deep relationships with legacy healthcare providers (who might also benefit from Azure) would be a nice step forward.But there's also an even bigger win on the horizon for Microsoft in the Nuance acquisition. Click To Tweet
What about the rest of Nuance?
Nuance has many other products and technologies that Microsoft could use to its advantage; conversational IVR, contact centre AI, chatbot platforms, speech recognition and dictation capabilities and voice ID/biometrics. What will Microsoft do with that?
It’s not hard to imagine that Microsoft would want to keep hold of the profitable products in the Nuance portfolio, as well as pick up capabilities in areas where it feels Azure Cognitive Services is lacking. The question is whether this will be a priority or whether the healthcare ambitions see all of this stuff get kicked into the long grass.
You’d hope not, as there are some things that might be useful to keep hold of.
Voice biometrics has potential
Voice identification could be an area of interest, as highlighted by Dan Miller, Founder and Lead Analyst at Opus Research:
“I think that voice and behavioral biometrics is the sleeping giant here. Microsoft’s infrastructure in businesses includes the one resource (a directory) that is the universal source of corporate identity. Seamless authentication is a holy grail that applies both in contact centers and for access to corporate VPNs and Nuance brings some very formidable IP, tools and frameworks here.”
This is a great observation. Microsoft manages the Active Directory (register of employee details, email addresses etc) that authenticates and powers email, Teams, Sharepoint and almost all internal single sign-on (SSO) applications like your HR system, intranet, CRM, Contact Centre and much more.
Microsoft, then, holds the single source of truth for identifying and authenticating staff in all (or most) of the businesses it operates within. Being able to assign a voice print to that AD record will bring voice authentication into a safe, secure and reliable place and, for the first time, will enable indiscriminate adoption of voice technologies across most businesses. And it won’t matter whether you’re Apple or Android, whether you have a smart speaker or not.
This is something that no other company on the planet has the foundations to do, but will it?
Branded products could be in danger of commoditisation
Other things it might keep hold of could be branded products like Dragon dictate. It’s a brand in its own right and may well be profitable. However, it does have the potential to be commoditised due to the advanced speech recognition technology available for free from the likes of Google, Apple and in some cases, Microsoft.
The jury is out as to whether it performs better than Microsoft’s existing speech recognition capabilities or whether it has gubbins that can be pulled apart and used to enhance Microsoft’s offering. We could see it get rolled into the Windows OS or 365 suite, as Microsoft has already started doing with captioning Power Point presentations. However, that does depend on whether it performs better than what Microsoft already has.
What about the rest of Nuance? IVR, voice assistants and chat?
One of the biggest questions leftover is: what about the other voice AI products like interactive speech enabled IVRs, chatbots and independent voice assistant technology that Nuance has been providing to other industries like finance and retail?
Honestly, I’m not sure it’ll be good news, in the long term at least.
“Microsoft has many tools that overlap with Nuance products …”, observes Bret Kinsella, Founder and CEO, Voicebot.ai.
Things like the Microsoft Bot Framework, Composer, LUIS, speech to text and the rest of the Azure Congitive Services offering all have similarities with some of Nuance’s products. One can only imagine these will either be folded into the Azure suite where relevant in an effort to squeeze some additional performance from it, or scrapped.
If I was a Nuance customer for chat or IVR services, I’d be starting to think about looking around for another provider or getting a jump on migrating to the place you’ll inevitably end up: Azure.If I was a Nuance customer for chat or IVR services, I'd be starting to think about looking around for another provider. Click To Tweet
A sign to the market: voice AI is here
Regardless of what actually happens, this acquisition is a sign to the technology sector at large: voice is here.
Andy Webb, ex-BBC and current VP Conversational AI, Defined Crowd, said:
“It’s a clear statement of intent to the wider digital industry about how they (Microsoft) see direction of travel.”
So, is this a statement that Microsoft believes that voice computing is the future of work and the future of human computer interaction? Is Microsoft gearing up to become the out-and-out global leader in cognitive services? Is healthcare the first step, a short term focus to cut its teeth and refine its strategy for the rest of the market? And does it have its eye on longer term enterprise-wide cloud migrations?
I’d say yes, yes, yes and, erm… Yes.