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Valuation: $10 billion
Microsoft is said to be in exclusive talks to acquire online group chat platform Discord for $10 billion or more. The voice chat and messaging app, often used by gamers, has seen a big boost in the pandemic.
Phil Spencer, Microsoft's gaming chief and the exec who would likely wind up with oversight of Discord if the acquisition goes through, explained in a March internal all-employee meeting what might be the rationale behind acquiring the app:
"Satya [Nadella, Microsoft's CEO] has really gotten onboard with content creators as an important part of Microsoft's platform future, and game creators are an important category of content creators," Spencer said, according to audio of the meeting reviewed by Insider.
Morningstar analyst Dan Romanoff told Insider that "after looking at Pinterest and TikTok, Microsoft seems pretty clearly to be interested in properties that have large and active user communities."
"With its 140 million monthly active users, Discord has largely been adopted by gamers, but since the lockdowns began, its user base of youngsters have increasingly used the platform for general socializing and study groups," he said.
Market Cap: $7.75 billion
Smartsheet builds a cloud-based work management tool that D. A. Davidson analyst Rishi Jaluria told Insider Microsoft could acquire to bolster its collaboration products.
Smartsheet has also been mentioned as a potential acquisition target for Zoom, but as Jaluria points out, Microsoft and Smartsheet are both based in the Seattle area so there may be "links" between the companies.
Market cap: $65.82 billion
Twilio builds a cloud communications platform to help developers write apps that can send text messages and make phone calls. D. A. Davidson analyst Rishi Jaluria said Twilio would be an interesting — if pricey — acquisition for Microsoft, but it's unlikely the company would want to sell.
Twilio has been a favorite among analysts' potential Microsoft acquistion picks. RBC Capital Markets in a report last year said that Twilio would be a good buy for Microsoft in order to embed its voice, messaging and email communications into Microsoft's consumer and business applications — and bring along the more than 7 million developers who use it.
Morningstar analyst Dan Romanoff told Insider in August that Microsoft could add "name brand" acquisition targets such as Twilio to its shopping list. Twilio could be a good fit for its Microsoft 365 suite of business software applications, Azure cloud computing business, or Dynamics customer relationship management software, he said at the time.
But Twilio's market cap is significantly higher than Microsoft has ever paid for an acquisition, nearly three times as much as the $26 billion the company paid for LinkedIn.
Market cap: $19.33 billion
Microsoft could acquire database company MongoDB — a frequent critic of Amazon Web Services, Microsoft's chief cloud competition — to add to its Azure cloud business, growing the reach of its own database products, D. A. Davidson analyst Rishi Jaluria told Insider.
Valuation: $100 million
Seattle-based AI and machine learning startup Algorithmia would be a good acquisition target for Microsoft, Lopez Research analyst Maribel Lopez told Insider. Algorithmia investors include Gradient Ventures and Madrona Venture Group.
"Everybody's got their own AI ops, but they're actually some interesting startups that are in the space, like Algorithmia," Lopez said. "That would be a good tuck-in acquisition because they've been funded and they're not too big, so they could still be kind of interesting and become part of a platform. Everybody's talking about AI ops, but the reality is nobody's really doing it yet."
Valuation: $238 million
OctoML is basically an operating system that helps connect machine learning models to the hardware they're being used for, such as phones or cars. The open source version of OctoML is used by companies like Facebook, Amazon, and Microsoft in their products.
Lopez Research analyst Maribel Lopez said the startup could add to Microsoft's artificial intelligence capabilities.
"You're already going to put your stuff in Azure, so if you're doing that, then why wouldn't you do all of your machine learning operations pipeline," Lopez told Insider.
Valuation: $70 million
San Francisco-based Airspace Systems builds specialized drones for identifying and removing "rogue drones." The startup has raised $25 million since it was founded in 2015, and its latest funding was a $20 million Series A led by Singaporean VC firm Singtel Innov8 in 2018.
Lopez Research analyst Maribel Lopez told Insider Airspace Systems's products could be used for security at airports: "If you're the FAA, you want to make sure that nobody is flying a drone around your airplanes because that could take down a plane if it got in the wrong spot," she said.
Within the public sector, Microsoft has an extensive track record of government-focused solutions, including its Azure Government cloud (the unit at the core of the $10 billion JEDI cloud deal with the Department of Defense, which is currently tied up in court amid protests from Amazon), as well as a recent $21.88 billion contract with the Army for its HoloLens headsets.
Valuation: $21.83 million
Campbell, California-based Rulai builds AI-enabled virtual assistants for use in customer service, HR, marketing, sales, and logistics. Founded in 2016, the startup has raised $14.5 million and its latest funding was a $8 million convertible note in 2018, and a $6.5 million Series A led by Palo Alto-based GSR Ventures in 2017.
Jim Lundy, founder and lead analyst of Aragon Research, told Insider he expected to see a lot of mergers and acquisitions around "conversational AI vendors," or AI companies that specialize in voice recognition, similar to Microsoft's planned acquisition of Nuance. Many of those vendors, like Rulai, are prime targets for acquisitions because they're small enough to be easily affordable to Microsoft but poised to grow big in the next few years, Lundy said.
Valuation: Unknown
New York-based Amelia develops conversational AI for banking, insurance, healthcare, telecom, and IT services. Founded in 1998 as IPsoft, the company's "Amelia" AI can take the place of human agents. The company says its Amelia avatar provides the most "human-like" digital experience, though notably in 2018, Swedish online bank Nordnet ended its use of Amelia, calling the AI the wrong fit for the company.
As with Rulai, Amelia was identified by Aragon Research analyst Jim Lundy as a conversational AI vendor leading in the field, and could be a good fit for acquisition down the line.
Valuation: Unknown
Chicago-based Arturo uses deep learning to analyze aerial images and provide insurance companies with property inspection data. Originally part of American Family Insurance, Arturo also provides predictive data for the insurance and claims market. Its most recent funding was a $8 million Series A led by San Francisco-based Crosslink Capital last April.
Similar to the companies specializing in conversational AI, Aragon Research analyst Jim Lundy told Insider that computer vision startups like Arturo are still in "incubation status," meaning there's "a lot of movement in a lot of different areas and for a lot of different use cases." Though Microsoft has its own computer vision capabilities on its Azure cloud, acquisitions of more focused startups could help with making inroads into certain industries.
Valuation: $220 million
San Francisco-based Chooch builds computer vision models for visual detection in industries such as healthcare, media, and retail. Founded in 2015, the startup has raised $25.8 million, and its latest funding was a $20 million Series A led by Singapore-based Vickers Venture Partners last November.
Chooch can be deployed on cloud-enabled devices as well, and also falls into the category of computer vision startups that are applying their technologies for a variety of use cases, as Aragon Research analyst Jim Lundy described to Insider.
Valuation: $9.7 million
Santa Monica, California-based Trueface uses computer vision to identify faces and objects in video streams. The startup says it has partnered with industry leaders in retail, security, hospitality, and financial technology. Founded in 2014, it has raised $5 million and its last round was a $3.7 million Series A from Lavrock Ventures, Scout Ventures, and Advantage Ventures in 2019.
As with Chooch, Trueface's product aims to apply image recognition technology to enterprise problems, but has a focus on facial recognition. It can also be used in a cloud or on-premise environment, and could augment Azure's facial recognition capabilities — though facial recognition has found itself the target of political scrutiny, with some cities including San Francisco banning the technology entirely.
Valuation: $66.32 million
Berkeley, California-based Fervo Energy develops geothermal energy solutions. Founded in 2017, it uses drilling methods to tap geothermal energy, a renewable energy source. It last raised $11 million in Series A funding led by Oakland-based Congruent Ventures in 2019, and has also been funded by Breakthrough Energy Ventures, the $1 billion clean energy fund led by Bill Gates.
Fervo could help Microsoft's goal of becoming carbon negative by 2030, while also providing the data centers that power services like Azure and Office 365 cheap and abundant power.
The startup was also named one of 46 climate-tech startups VCs told Insider would soar in 2021, and CEO and cofounder Tim Latimer was also named one of Insider's rising stars of clean energy.
"It strikes me that there's some next sustainable energy play that they might want to make, and it just might make enough sense, given how big they are in cloud," Lopez Research analyst Maribel Lopez told Insider. "Solar is kind of tough because I still feel that's moving quite a bit, but I could see geothermal power being something that they could be interested in."
Valuation: Unknown
Indegene is an India-based company that makes customer service engagement tools for the healthcare and pharmaceutical industry. The company is best known for providing marketing tools for pharmaceutical companies, but also makes tools to manage R&D, patient data, among other things.
In 2017, Indegene and Microsoft announced a partnership that would combine Microsoft Dynamics sales tools with Indegene to create tools for sales and medical representatives to better engage healthcare practitioners.
Given Microsoft's recent interest in the healthcare industry, seen with its acquisition of Nuance, Valoir analyst Rebecca Wettemann said acquiring this type of company would make sense. "They've built out an entire package solution for healthcare and pharma on the Microsoft platform," she said, which means integrating the product would be easier.
Valuation: Unknown
JourneyTEAM is a consulting partner that helps companies implement and start using Microsoft tools. The company specializes in consulting services for Microsoft Dynamics, SharePoint and Office 365. Acquiring a consulting partner like JourneyTEAM could help Microsoft deliver the capabilities it has been acquiring in healthcare and other industries, Valoir's Rebecca Wettemann said.
As Microsoft acquires and adds new complex tools for industries, having the expertise to implement it for customers is important, Wettemann said.
Valuation: Unknown
Neudesic is a technology consulting firm that helps companies migrate to the cloud and implement cloud software tools, and Microsoft is one of the companies it partners with. Similar to JourneyTEAM, acquiring Neudesic would give Microsoft expertise in helping customers move to Azure and implement tools like Dynamics 365, Valoir's Rebecca Wettemann said.
Valuation: $120 million
Clarifai makes an artificial intelligence platform that analyzes images and video. Its tools are also available as APIs for developers to customize and embed in their own platforms and apps. Clarifai's last funding round was a $30 million Series B led by Menlo Ventures in 2016, and it has raised $41.25 million to date.
Given how important Microsoft Teams is to Microsoft's business, it would make sense for the company to look at enhancing it with these sorts of tools, said Valior's Rebecca Wettemann. With all of the video data Microsoft is collecting from Teams, having AI tools to analyze it and organize that data would give them a competitive edge, she said.
Valuation: $103 million
X.ai is an AI-powered personal assistant that helps automatically schedule meetings via email. It integrates with email, calendar, and video chat tools from Microsoft and Google, and other productivity tools like Slack or Zoom .
It last raised $10 million in funding through a combination of debt and equity in 2017, and has raised $44.22 million to date. The round was led by Pegasus Tech Ventures with participation from Two Sigma Ventures and DCM Ventures.
Microsoft is now on almost every desktop and is going to be challenged by Salesforce acquiring Slack, so acquiring a personal productivity tool like X.ai would help it stay competitive, Valoir's Rebecca Wettemann said. It would be a "broad kind of end user productivity play to enhance what they're doing on the desktop," she said.
Valuation: $2.3 billion
Grammarly is a product that helps edit documents, emails, and other text for spelling and grammar mistakes. The company last raised funding in 2019 — a $90 million round led by General Catalyst, and has raised $200 million total to date.
It can be used with Google and Microsoft's productivity tools, and is available as a browser extension for Google Chrome and Internet Explorer, or as a desktop app for Windows or Apple computers.
Acquiring Grammarly would be a logical way for Microsoft to enhance its personal productivity tools, Valoir's Rebecca Wettemann said.
Valuation: $2.7 billion, according to Bloomberg
Monday.com is a workplace productivity platform that helps teams manage tasks, teamwork, and projects. It also offers low code and no code tools to help customers create workflows and automate certain tasks.
Last year, the Israel-based company saw its valuation jump to $2.7 billion due to a secondary share sale, Bloomberg reported. Its previous valuation was $1.9 billion, and last raised a $150 million Series D led by Sapphire Ventures in 2019. It has raised $234.1 million to date.
As Microsoft focuses more on collaboration with Microsoft Teams and its Office 365 tools, adding software that compliments that approach would make sense, said D.A. Davidson analyst Rishi Jaluria. "As we head into this very hybrid work future where our workforce is going to be distributed, there's a lot more software tools that enable projects to happen in that collaborative and distributed manner," Jaluria said. "Microsoft doesn't really have a solution in that space right now."
Market Cap: $35 billion
Okta makes identity and security tools for businesses, and is best known for its "single sign-on" tool that lets users sign into multiple apps with one login. Founded in 2009, Okta saw its business boom during the pandemic as its products became essential for remote workers. It has also been tackling another opportunity in consumer identity tools — an initiative that CEO Todd McKinnon said has the potential to become a big business.
Microsoft has its own identity tool, Azure Active Directory, that competes with Okta. However, Okta's tool is much more robust than Microsoft's, said D.A. Davidson's Rishi Jaluria.
"I think it would give Microsoft a stronger presence in security than they have today," Jaluria said, while Okta "has more significant developer adoption. It's widely used with Microsoft products."
Market Cap: $56 billion
Twitter has come up as an acquisition target before: Salesforce famously pulled back from an attempt to buy the social network back in 2016.
Microsoft's reported interest in Discord, TikTok, and Pinterest shows that the tech titan is interested in using M&A to make headway in the consumer space, said D.A. Davidson's Rishi Jaluria.
Twitter in particular would bring a lot of value to a large enterprise company because it has a large user base and an established niche as a source of breaking news.
"That's the one social media asset out there that probably I think would make sense as part of the larger company," Jaluria said. "That could be Microsoft's big foray into consumer social media."
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