Why Nuance? Microsoft is making a $19.7 billion bet on ambient digital healthcare


Nuance’s technology uses voice recognition, AI, and natural language processing to streamline healthcare processes. Nuance will bolster Microsoft’s Cloud for Healthcare significantly.
Microsoft’s move to pay $19.7 billion in cash for Nuance Communications is a bet that it can be a digital healthcare operating system that pulls its cloud portfolio into an industry being transformed. The deal for Nuance comes as the enterprise and healthcare artificial intelligence company is just hitting its stride. Not only does Microsoft’s purchase of Nuance make more sense than rumored talks for TikTok, Pinterest, and Discord, but the two companies are already partners and can drive revenue across the healthcare industry and enterprises.

Nuance’s technology uses voice recognition, AI, and natural language processing to streamline healthcare processes. The company in recent years has shed units and businesses to double down on AI-driven healthcare under CEO Mark Benjamin, who will report to Scott Guthrie, chief of Microsoft cloud and AI businesses.

In 2020, 62% of Nuance’s revenue came from healthcare with the remainder attributed broadly to enterprises. For its part, Microsoft recently launched Microsoft Cloud for Healthcare, which will be built out significantly with Nuance in the fold. Microsoft CEO Satya Nadella is making a big bet on industry-specific clouds and the Nuance purchase expands its total addressable market for healthcare to $500 million.

Nadella said on a conference call:

It’s now very clear that health care organizations that accelerate their digital investments can improve patient outcomes and reduce costs at scale. Advances such as AI will have an enormous impact on augmenting human capability in health care. AI is technology’s most important priority, and health care is its most urgent application.

Nuance is a pioneer in enterprise AI, and it’s the AI layer at the health care point of delivery. This acquisition brings our technology directly into the physician/patient loop, which is central to all health care delivery.


And the integration work may not be that significant since Nuance’s Dragon Ambient eXperience platform is intertwined with Microsoft Teams and aligned with Microsoft Azure. In 2019, Nuance and Microsoft combined on a healthcare stack that included speech recognition and processing, clinical documentation, decision support, and Azure AI and natural language tools.

The pitch from the two companies is that they could alleviate burnout by automating administrative tasks. That burnout has only been magnified during the COVID-19 pandemic. Ultimately, Nuance and Microsoft want to provide an ambient clinical experience. The combination of Microsoft services and Nuance Dragon Ambient eXperience (DAX) is billed as an ambient clinical intelligence (ACI) platform.

This ambient clinical experience is designed to take doctor and patient interactions and produce clinical reports and automate documentation as well as electronic health records.



Microsoft, like other cloud providers, is increasingly focused on building industry-specific clouds. This playbook was originally deployed by enterprise software giants SAP and Oracle and now has become a staple for Salesforce, ServiceNow, and Microsoft too.

At a January investor conference, Benjamin spent a lot of time talking about DAX, which is likely to become the base of Microsoft’s healthcare efforts. The Nuance CEO said:

While the technology behind the scenes is certainly revolutionary for health care, the user experience is very straightforward. DAX’s ambient recording process allows a physician to focus all of her attention on the patient for the entire interaction, whether virtually or in-person rather than spending time taking notes.

DAX does all the work from there and the doctor receives a completed clinical note shortly thereafter that just requires the doctor’s final review and sign off. DAX eliminates the burden of documentation, freeing clinicians to focus on what they got into medicine for in the first place, helping patients.

The benefits go even further than that, giving them back time in their day, improving satisfaction, and decreasing burnout.

In addition, Nuance’s Dragon platform has been widely adopted in healthcare since voice always played a role. The cultural hurdle from a doctor recording notes into a voice recorder to DAX isn’t that much of a leap.

DAX’s platform digitizes and records the conversation between the clinician and patient and the data is used to create clinical notes, diaries, and EHRs. From there, Nuance’s AI learns with each patient encounter. DAX is available in 14 specialties, but the opportunity to thin slice the market could be worth between $4 billion and $8 billion, said Benjamin.

Nuance plans to take DAX and integrate it into telehealth platforms and collaboration tools including Teams. Benjamin added that DAX customers and hospitals roll it out to 10 to 30 doctors and then expand implementations based on returns. Return on investment revolves around the patient and physician experience, documentation quality, and efficiencies.

Before the acquisition, Nuance said DAX had a good base of adoption, but a lot of runway for growth. Nuance projected cloud annual recurring revenue for DAX of $10 million to $21 million in fiscal 2021 and accelerating from $100 million to $250 million in fiscal 2023.

In a research note, Wedbush analyst Daniel Ives said:

We also believe as Microsoft (major partner with Nuance on DAX) further attacks the healthcare vertical with its strategy/distribution that DAX will see tailwinds over the next year around building a strong pipeline of deployments.

Ives estimated that the DAX business can be worth $3 billion to $4 billion of Nuance’s valuation.

The bulk of Nuance’s cloud recurring revenue will come from its other healthcare offerings such as PowerScribe One. Nuance also has AI services for radiology.



Simply put, Microsoft is acquiring Nuance when DAX early in the growth curve. If Microsoft can cross-sell Azure and other servers at all, Nuance’s projected 30% to 40% compound annual cloud growth rates can be turbocharged.


Nuance’s technology is also widely used in the enterprise for AI, biometric identification, as well as engagement via digital channels.

The company’s platform has been used by the Bank of Korea as well as the Center of Medicare and Medicaid Services. For instance, during open enrollment for Medicare and Medicaid, Nuance left 18 million automated messages for five million distinct customers over eight weeks.

Nuance also has bilingual AI-based virtual voice assistants and has deployed Pepper for SpiceJet, an India airline.

In addition, Nuance’s technology is also used for interactive voice response systems in call centers. That footprint can also be leveraged for Microsoft’s sprawling enterprise software portfolio including Dynamics.

On Nuance’s fiscal first-quarter earnings conference call, Chief Revenue Officer Robert Dahdah was asked about the Microsoft partnership. Dahdah noted that the partnership goes beyond healthcare and into the enterprise.

We have opportunities to work closely together and to really enhance much of what they’re doing. So, we think it’s a big draw because it’s not just a chance to go to market, so to speak, with – and get more distribution for our stuff. But our stuff, we think, helps create great interest in some of the stuff that they sell. So, it truly is a complementary offering in enterprise and health care.

Dahdah added on that February conference call that the partnership was still in its early stages, but there is great access and dedicated teams. Turns out that the initial Nuance and Microsoft partnership was a nice test run for the acquisition.

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