Microsoft Corporation (MSFT) just completed the acquisition of an in demand predictive typing and language-parsing software startup, SwiftKey. It’s a company that Facebook (FB) tried (and failed) to buy two years ago.
SwiftKey, which was snapped up for $250 million, has a popular predictive typing app that Microsoft will likely use to expand its presence in mobile and ultimately the cloud.
As Microsoft shareholders are well aware, the cloud is an increasingly important part of Microsoft’s corporate strategy, as it shifts from a license-based revenue model to a subscription-based cloud model.
Excluding Amazon (AMZN), whose enterprise-facing cloud computing arm Amazon Web Services was almost singlehandedly responsible for Amazon’s meteoric share price rise in 2015, MSFT is the most visible example of established Silicon Valley companies transitioning to the cloud to produce revenue.
With the acquisition of SwiftKey, CEO Satya Nadella continues to pursue this cloud-centric vision that has defined the early years of his tenure as CEO.
It’s in stark contrast to predecessor Steve Ballmer, whose lack of motivation to move on up-and-coming technologies eventually cost MSFT billions in opportunity costs.
But just how does SwiftKey fit into Nadella’s vision?
MSFT: Nudging Users Into Its Ecosystem
With this $250 million acquisition, not only does Microsoft get an impressive technology that can be rolled out to current users, it gets the talent behind the company, and perhaps most importantly, a way to acquire new cloud users.
SwiftKey’s keyboard app is popular on both iOS and Android, and from now on it may ask new users to sign up for a Microsoft account to use it. Currently, you actually have to have a SwiftKey account to use the keyboard in all its functionality.
There’s a reason FB tried to acquire this company years ago — talent.
The SwiftKey team is an invaluable asset for MSFT, bringing predictive language, natural language and language parsing into Microsoft’s house. The best and brightest in Silicon Valley are all interested in these areas. Amazon, MSFT, Alphabet (GOOG, GOOGL) and Facebook all have search engines, personal assistants and artificial intelligence projects going on that can always use proven experts in SwiftKey’s field.
Indeed, the SwiftKey acquisition may have positive future consequences we just can’t predict today. If it helps Bing’s search engine get just a little bit better, and gain even 1% of the global search engine market, that will be worth billions of dollars.
At the end of the day, we’ll have to wait and see what SwiftKey becomes for MSFT, and how the talent it acquired will contribute to the company. But it’s a good pickup for Microsoft, who didn’t just acquire SwiftKey — it prevented Facebook from doing so.
As of this writing, John Divine was long AMZN. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
