Microsoft’s SwiftKey Acquisition Bolsters its AI Talent and Market Reach

microsofts-swiftkey-acquisition-bolsters-its-ai-talent-and-market-reach

The News

In a blog post, SwiftKey executives Jon Reynolds and Dr. Ben Medlock announced that the artificial intelligence (AI) company they founded 8 years ago will become part of Microsoft.  According to reports published in the Financial Times, the privately held SwiftKey is being acquired by publicly traded Microsoft in a deal valued at $250 million with earn-outs. Reynolds and Medlock are each expected to make $30 million on the transaction.  Both are not yet 30. The firm’s backers, Accel Partners, Index Ventures, and Octopus Investments, Jon Craton, Nick Hynes, and Richard Brennan, among others, stand to collectively see an almost 10 times return on their investment.

The Company and Product

Headquartered in London, SwiftKey builds mobile application software.  SwiftKey uses natural language processing (NLP) and deep learning algorithms to predict future word choices of individuals based on previously-entered text. The company has 160 employees and offices in London, San Francisco, and Seoul, as well as people in India and China.

In 2010, SwiftKey released a beta version of its product, which supported 7 languages and offered a number of innovative features. Approximately one year later, in July 2011, the company’s first non-beta product, SwiftKey X, was released on the Android platform. Since then, SwiftKey’s application has gone through a number of iterations. In its current version, SwiftKey supports more than 100 languages and 800 emoji (with prediction), incorporates a collection of AI and machine learning algorithms, and is available on Android and iOS platforms as a free application.

SwiftKey Keyboard for Android is Google Play’s most popular keyboard app. SwiftKey Keyboard for iPhone, iPad, and iPod Touch had more than 1 million downloads in its first day of launching on the App Store. Its apps are currently installed on more than 300 million devices worldwide. SwiftKey users have saved nearly 10 trillion keystrokes and more than 23,000 years in combined typing time. Yet the company struggled in turning their success into a viable business model beyond bundling its technology with other products.

Why the Announcement is Significant

From a traditional merger perspective, the acquisition is puzzling since Microsoft already has a similar product and SwiftKey revenues will not be material to a company with sales of over $93 billion. However, what Microsoft gets from its acquisition are customers, technology, and talent. SwiftKey gives Microsoft 300 million more customers in important Google and Apple markets, and since the technology is based on data, it can be applied across any platform.  As strong as these advantages are, the talent Microsoft is acquiring is perhaps even more important.

Depth of Talent

I interviewed Dr. Ben Medlock for Tractica’s report on Artificial Intelligence for Enterprise Applications and met him at last year’s South by Southwest (SxSW) event.  Medlock is well educated, well spoken, and well mannered. Although his name sounds like he should be a TV doctor, he has a Ph.D. in Natural Language and Information Processing (so don’t ask him to deliver a baby).  He met his co-founder Jon Reynolds at Cambridge University, where they were both students.

Medlock told me that for the first few years after graduate school he abandoned AI entirely in favor of traditional approaches to NLP.  Then, when he and Reynolds attempted to solve the problem of spam by performing textual analysis on email messages, he applied his education with notable results.  Detecting spam did not work out, so the team pivoted and developed a new way to correct the spelling of text messages.

By any measure, the company is very well managed. Not only has it carefully husbanded its resources and hit engineering deadlines, it has recruited talent in a very competitive market. Reynolds and Medlock were able to create a workplace culture that was nominated by the Sunday Times as one of the best places to work in the UK. Although I have not met Reynolds personally, I predict one or both of them will have a long career as Microsoft executives if that is what they choose. In any case, they are likely to be there for a period of time to collect the earn-out. Microsoft seems pleased with its new acquisition, as well.

“We’ll continue to develop SwiftKey’s market-leading keyboard apps for Android and iOS as well as explore scenarios for the integration of the core technology across the breadth of our product and services portfolio,” said Harry Shum, Executive Vice President, Technology and Research in a blog post. “In the interim, I’m extremely excited about the technology, talent and market position SwiftKey brings to us.”

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