Microsoft Makes a $16 Billion Entry Into Health Care AI


When Microsoft CEO Satya Nadella spoke to investors Monday about his company’s plan to acquire speech-recognition specialist Nuance for $16 billion, he emphasized the importance of artificial intelligence in health care.

Nuance’s software listens to doctor-patient conversations and transcribes speech into organized digitized medical notes. This helps explain the hefty price tag, even as voice recognition has become commoditized and now comes packaged with every smartphone and laptop. But Microsoft may also see much broader potential for Nuance’s technology.

Gregg Pessin, an analyst with Gartner, says the deal gives Microsoft “an entry point into the health care industry, and a huge customer base already running this stuff.”

Siri and Alexa may understand your grocery list, but Pessin says Nuance has spent time and effort developing technology that grasps the specialized language of medicine; that won’t be easy for other companies to replicate, he says. “That process of getting the system, the AI engine, to understand the medical jargon that’s important and difficult—I think that’s the real gem.” Pessin says Nuance may be able to develop parallel systems for other industries with their own jargon, such as law.

Nuance’s voice transcription technology is used by more than 300,000 clinicians and 10,000 health care organizations worldwide, according to the company’s most recent financial report, for the year ending September 2020.

Those relationships offer Microsoft a way into a market that promises to be worth billions of dollars annually. A report from IDC published in August 2020 estimates that worldwide spending on AI will more than double from $50.1 billion in 2020 to over $110 billion by 2024, and it named health care as one of the largest sectors. Microsoft said in a statement that the acquisition would double the value of the health care market it accesses to $500 billion.

Health care is widely seen as a key industry for applied AI. Numerous research studies show the potential for AI algorithms to spot disease in images or mine medical records for insights into treatment paths. And while challenges remain, like getting doctors to trust the technology or preventing bias that creeps in when the data used to train medical algorithms is insufficiently diverse, an increasing amount of AI is likely to be deployed in health care in coming years.

Voice recognition and natural language understanding have improved significantly in recent years, thanks to advances in AI. The technology has been around for decades, but new machine-learning methods have made it easier to train machines to recognize speech reliably. Nuance, which traces its origins to a firm founded in 1992, faces growing competition from companies like Google and Amazon, but it also has experience honing the technology and selling into niche markets.

“The health care business is huge, and it probably is the main reason that Microsoft is buying Nuance,” says Ian Jacobs, an analyst at Forrester. “But the price reflects the overall value that Nuance brings, all the things it does.”

Besides health care software, Nuance makes a platform for building chatbots, voice-based authentication technology, and tools for monitoring call center conversations. Jacobs says the $16 billion price tag reflects the broader potential of these technologies as well as the growing importance of AI for health care.

Jacobs says the deal may also reflect an expectation that more health care will be delivered over the internet. “Telehealth has become more accepted—it’s not going away,” Jacobs says. He believes that Microsoft may be betting that more sophisticated forms of AI will eventually be able to triage patients before they see a doctor, or offer medical professionals advice in real time. “Think about the ability to augment the ability of the clinician,” he says.

Dan Miller, lead analyst at Opus Research, agrees that Nuance offers more than just a way to reach doctors, and he says it fits with Microsoft’s strategy of selling AI and cloud software into specific industries. “There is a lot of upside,” he says. “Is the price right? That just comes down to execution and Microsoft management making it fit with the stuff they are doing.”


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