Microsoft doesn’t want to compete with doctors, Scott Guthrie says

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Scott Guthrie, Microsoft’s executive vice president of cloud and artificial intelligence, speaks at Microsoft’s Build developer conference in Seattle in May 2019.

Source: Microsoft

Thanks to its pending acquisition of Nuance Communications, Microsoft will soon have a suite of software tools that doctors use to automatically keep notes on meetings with patients. But Microsoft isn’t interested in automating everything doctors do, said Scott Guthrie, the software company’s executive vice president for cloud and artificial intelligence.

The pending acquisition, worth $19.7 billion including debt, is an unusual case of a major technology company drawing from its cash pile to gain relationships in an individual industry. Microsoft’s rivals in the growing cloud computing market have not gone so far. If the move proves successful, Microsoft could convert Nuance customers into big users of Microsoft’s Azure cloud and strengthen its position relative to the market leader, Amazon.

Headquartered in Burlington, Massachusetts, Nuance is widely known in the U.S. health-care space, but has room to grow overseas. On the day the deal was announced, Microsoft said that 55% of U.S. doctors and 77% of U.S. hospitals use Nuance, and 80% of its revenue came from the U.S. in its most recent fiscal year. That means Microsoft can introduce Nuance to its massive international customer base. Last fiscal year, 49% of Microsoft’s revenue came from outside the U.S.

There are certain human medical processes that can be automated that Microsoft isn’t immediately interested in. For instance, in recent years, researchers have developed tools that ask patients questions to help diagnose diseases and detect cancer by analyzing medical images.

“We’re not looking to compete with doctors or health-care providers,” Guthrie told CNBC in an interview last week. “We want to make them more successful.” Guthrie said that Microsoft and Nuance both want to partner and integrate with other software makers and developers. He said that Nuance has strong relationships with Cerner and Epic Systems, which offer electronic health records software.

Nuance’s AI capabilities could enhance Microsoft’s Teams communication app and its Dynamics 365 enterprise software, Guthrie said in a call with analysts in April. Microsoft could also apply Nuance’s technology in other areas, such as conversations between financial advisors and their clients. And ultimately, a key metric of the success of the deal is greater adoption of Azure, said Amy Hood, Microsoft’s finance chief.

Microsoft sees the acquisition expanding its total addressable market in health care to $500 billion.

Health care will be among the fastest-growing industries over the next decade, Guthrie said. (Deloitte estimated that global health spending will have a 5% compound average growth rate from 2019 to 2023.) Last year Microsoft introduced cloud tools for health care, and soon it will also have software that understands conversations between doctors and patients, whether in person or held virtually.

Other cloud providers, including Amazon, have sought to make inroads in health care. But while Amazon has emphasized its infrastructure, Microsoft and Nuance will bring a unique approach centered on doctors, said analysts at Jefferies, which has a buy rating on Microsoft stock, in a note to clients last month.

“Having not just virtual machines or containers, but having things like Nuance, having things like GitHub, having things like Teams, having things like Power Platform — those are examples of unique cloud services that none of the other hyperscale cloud vendors have anything like,” Guthrie said.

Adding Nuance to the lineup could make Microsoft more appealing to developers targeting the health-care industry, he said.

The acquisition is expected to close later this year. When it’s complete, Nuance’s CEO, Mark Benjamin, will report to Guthrie.

WATCH: Wheelhouse’s chief investment officer discusses Microsoft’s Nuance acquisition

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