Nuance Pays $100M for Swype, but Why Exactly?

I'm not a big fan of the Swype keyboard but many people are. Yesterday Nuance agreed to acquire Swype for $102 million, $77 million of which is up front. The rest will apparently be paid 18 months later:

The aggregate consideration payable to the former shareholders of Swype consists of $102,500,000, of which $77,500,000 was paid at the closing and the remaining $25,000,000 (the ‚ÄúContingent Consideration‚ÄĚ) is payable on the eighteen month anniversary of the closing. 

Numerous people have now reported on the deal but almost no one has penetrated the rationale except to say, in effect, "Swype is popular." (Read my colleague Authour's interesting and somewhat different take on the acquisition.)

When I first read about the deal on Mike Arrington's new blog Uncrunched I was puzzled. Why would Nuance be spending $102 million for technology it already owns. The Nuance Flex T9 Android keyboard does speech and Swype-like tracing, among other things. It's the most complete Android replacement keyboard in the market.

In fact Nuance often favorably compared itself to Swype, saying that it effectively out-swyped Swype itself. As mentioned Flex T9 does more than Swype; it's more flexible (hence the "flex" part). So why would Nuance buy Swype? There are a few potential reasons:

  • Swype had a patent or patents that Nuance wanted or felt it would ultimately confront
  • Swype has stronger mobile carrier relationships than Nuance 
  • Swype has a stronger consumer brand than "Flex T9"
  • Swype offers a more accelerated path to a wireless consumer business
  • Nuance wanted the team behind Swype
  • Some or all of the above

Stil it doesn't entirely add up for me. I'll be curious to get Nuance's perspective and see where they're going to try and take their keyboard business.

Flex T9 costs users $4.99; so maybe there's a revenue aspiration in the acquisition as well (bolster the offering). It's not clear whether that $4.99 pricing will be extended to the otherwise free Swype or whether Nuance will will rebrand the Flex T9 as Swype and make it all free. 

You can see Flex T9's Swype-like capabilities in the video below.

Screen shot 2011-10-07 at 7.36.14 AM