Spend 16 billion US dollars to acquire the US version of "Technical University of Science and Technology", Microsoft will use AI to block Apple and Google?

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On December 22, Microsoft's acquisition of Nuance Communications, an AI voice and image recognition company, was approved by the European Commission. This transaction valued at approximately US$16 billion has been approved by the United States and Australia , and currently only the United Kingdom is still investigating. But for Microsoft, this game is basically taking shape.

Microsoft is a chess player, Nuance is a chess piece, and the playing field is AI - especially Nuance's AI medical care. For Microsoft, this is like a silent pursuit with Google and Apple.

The declining voice giant,

Facilitated the second largest transaction in Microsoft's history

This is the largest acquisition involving Microsoft in 2016 after it acquired LinkedIn for $26 billion. But it should be noted that although Nuance is a well-known company, its development has some declining trends.

Nuance's predecessor was Visioneer, which was established in 1992. Its business involves OCR, speech synthesis, speech recognition, PDF, and technical consulting. Its well-known application is Apple Siri. Some practitioners compare Nuance to the American version of " Technical University of Science and Technology ( 002230 )", which vividly portrays Nuance's status. Of course, from the perspective of the time of establishment and development, Nuance is almost a company at the "Master" level in the voice industry.

At one time, more than 70% of the global voice market belonged to Nuance, but this was all before 2017. At present, according to the statistics of West China Securities , Nuance accounts for 31.6% of the global intelligent voice market, which is closely followed by 28.4% of Google. During the explosive development of Internet giants, Nuance gradually exposed its weaknesses: its advantage comes from its early deployment, rather than its ability to continuously build technical barriers and keep up with market demand.

In the first quarter of this year, Nuance only earned 345.8 million U.S. dollars in revenue. In 2016, Nuance earned nearly 500 million U.S. dollars in revenue in an average single quarter. Nuance achieved revenue of US$2.052 billion, US$1.823 billion, and US$1.479 billion in 2018, 2019, and 2020, respectively. Even if you don't sell yourself to Microsoft, you can hardly think that this is a promising company.

This is related to its main business. Although Nuance is a technology streaming company, global AI technology has been unpopular since Deepmind became famous in 2016. In other words, there is more technology but not enough application.

Nuance has been working hard to reduce its business. In 2018, it independently listed the automotive artificial intelligence business Cerence. Ontology is mainly centered on the cloud system of hospitals and doctors. It uses voice recognition tools to help identify and record voices such as doctor visits, customer service calls, and voice mails. information. Nuance is a head supplier of medical conversational artificial intelligence and environmental clinical intelligence. 77% of hospitals in the United States are using Nuance services.

There is no doubt that health care is a gold mine in the context of increasing global aging, and AI medical can help solve the problem of medical resource allocation. The only problem with Nuance is that fierce competition is likely to make it happen on that day. I was in trouble before, but I didn't find an effective breakthrough point outside the main business.

In addition to this, simply finding a stronger partner is a good belonging. After all, Microsoft gave Nuance a 23% premium from the very beginning and also accepted its debt. And Microsoft obtained an entry voucher for AI medical treatment, which is true to everyone's joy.

However, since Nuance is no longer glorious, why didn't the "rich and technical" Microsoft choose to develop its own products and make use of its B-side advantages, instead of taking the path of acquisition? This has to mention the subtle competitive relationship among the three giants of Microsoft, Apple, and Google in terms of AI.

Starting from AI medical care,

What are the considerations for Microsoft to block Google and Apple?

In 2015, Apple set up a voice technology research and development team. What’s worse is that Apple’s team is located in the headquarters of Nuance in Boston, and continues to poach Nuance’s voice technology developers. Obviously, Siri’s success is indeed due to Nuance, but Apple I don't like the feeling of giving the lifeblood of key application areas to others.

Eliminating the technical dependence on Nuance is also Google's strategy. As early as 2004, Google poached Mike Cohen, the co-founder of Nuance, for his own use. The turning point was in 2016, when Google opened its speech recognition API to third-party developers for free. Because outside technical personnel generally recognized Google’s technical strength and status, and more people knew the details of the team, a large number of third-party developers left Nuance. Become the driving force for the development of Google's voice technology.

In fact, before Microsoft, Apple had expressed its intentions for Nuance, but Microsoft was one step ahead. The acquisition of Nuance is a kind of blockade by Microsoft against Google and Apple: The patent wall established by Nuance in the long-term development process is the "heart disease" of the giants. Now, it has become an advantage for Microsoft. The most important significance of acquiring Nuance is to prevent Google and Apple from using acquisitions to cut corners in AI voice.

West China Securities analysis industry believes that the current global intelligent voice market accounts for 22% of the total market size of the AI industry, second only to 37% of machine vision. In addition to the forward-looking application of AI medical treatment, the corresponding technology has great development potential on the B-side and C-side.

For example, smart wearables, homes, and sports equipment. Each device can become an application point of voice technology and an entrance to traffic. IDC predicts that global wearable device shipments will reach 637.1 million units in 2024, within five years The compound annual growth rate (CAGR) is 12.4%.

This may be Microsoft's consideration of its own business behind the acquisition of Nuance. AI medical care is bound to continue to operate, but Nuance, which has many technical patents, is also a recipe for rapid growth for Microsoft, which is less competitive in the AI voice market than Google. At the beginning, Microsoft Cortana withdrew from the To C market, except In addition to doing a good job of the B-side strategy, there are also factors that are inherently less competitive than Apple and Google.

Although there will not be large-scale competition on the C-side with other giants, companies such as Google have never stopped struggling with the B-side business, and they have often confronted Microsoft. Defending before attacking is also Microsoft's consideration.

AI medical applications can only support the actual market of billions of dollars at present, but Nuance also involves machine vision technology, DragonGo and other consumer-grade voice products, in-vehicle voice and enterprise services. In 2019, Microsoft launched the "Microsoft Healthcare Cloud". Nuance acted on the occasion, migrating some infrastructure and hosting products to the Microsoft Healthcare Cloud platform, and jointly developed industry applications such as clinical intelligent recognition technology. This was the result of this acquisition by Microsoft.

Now, when the two parties are finally able to integrate deeply, one or two industry solutions are by no means the end. It is Microsoft's long-term wish to find more possibilities from this game.

According to a survey by venture capital data company CB Insights, about 635 AI companies in the United States have been acquired in the past decade, and most of them have been acquired by giants. This means that even though the acquisition is huge and the industry is eye-catching, it is only a node on the way of the game. There is still a long way to go in this competition.

Concluding remarks

AI medical care is likely to be a rigid demand in the future. After all, it is a normal state for medical resources to appear unbalanced. But for Microsoft, doing creative incremental work is the ambition of a world-class company. In addition to rigid demand, Microsoft obviously wants to grow bigger. In addition to absorbing some technical capabilities, the acquisition of Nuance is also a throwaway for future AI applications.

The European Commission believes that Microsoft and Nuance provide "very different products" and that if the two companies merge, they will continue to face fierce competition from other participants. But if the humble cause is planted today, it may bear unexpected results in the future.