IBM’s Revamped Future Strategy Has No Place for $1B Watson Health Division

IBM is reportedly planning to sell Watson Health, its $1 billion AI-based data analytics offering for the health industry, in a move by CEO Arvind Krishna to trim costs and switch focus towards leadership in the hybrid cloud computing market.

The planned divestment of Watson Health, which generates over $1 billion in annual revenue, was first reported by The Wall Street Journal last Friday. WSJ reportedOpens a new window that the division failed to truly take off as “physicians were hesitant to adopt artificial intelligence,” and Big Blue is now looking at selling it off to a private-equity firm or industry player or merge it with a blank-check company.

Considering the revenue it generates and the scale at which it operates, Watson Health, sometimes referred to as Doctor Watson, can’t be pegged as a catastrophic failure for IBM. Still, it hasn’t been an outright success either. Raised in 2015 with IBM’s triple-acquisitions of healthcare data analytics firms Phytel, Explorys, and Truven, the division was expected to capitalize on the data-rich healthcare analytics genre. However, despite the big-money push it received, Watson Health failed to win the hearts and minds of healthcare companies, a fact reflected by the division’s inability to generate profit.

Doctor Watson was primarily touted as an AI-powered “diagnosis and treatment advisor,” with the ability to sift through large volumes of clinical data, healthcare research knowledge, and patient information to advise treatments and procedures. However, despite years of intense efforts at perfecting the technology, it has never been applied in practical terms.

The lack of innovation became apparent as early as 2018 when IBM embarked on a major layoffOpens a new window campaign targeting the Watson division with a special focus on Watson Health. AN IBM spokesperson admitted then that Big Blue was looking to “move to more technology-intensive offerings, simplified processes, and automation to drive speed” and to “hire aggressively in critical new areas that deliver value for our clients and IBM.”

See More: Can IBM Win the Cloud Wars After Spinning off Its Legacy Business?

IBM officially, but not openly, pulled the rug under Doctor Watson’s feet soon after Arvind Krishna took over the reins from eight-year CEO Ginni Rometty. Soon after he took over, IBM announced the spin-off of its managed infrastructure services unit of its Global Technology Services (GTS) division. The reset led to the creation of two significant revenue-generating portfolios: legacy IT management services and hybrid cloud and AI business.

“Now is the right time to create two market-leading companies focused on what they do best. IBM will focus on its open hybrid cloud platform and AI capabilities. NewCo will have greater agility to design, run, and modernize the infrastructure of the world’s most important organizations. Both companies will be on an improved growth trajectory with greater ability to partner and capture new opportunities – creating value for clients and shareholders,” Krishna said.

IBM’s shift towards hybrid cloud leadership has been a long-planned venture. The company kicked off 2018 with the $34 billion acquisition of Red Hat and followed it up with strategic investments to mark its arrival in the $200 billion cloud consulting services space. These included the acquisitions of Instana to advance its hybrid cloud and AI strategy, SAP consulting partner TruQua to streamline financial processes with cloud and AI, and Finnish cloud company Nordcloud to “turbocharge its hybrid cloud consulting ability.”

This month, IBM also struck a partnershipOpens a new window with Palantir Technologies to integrate its hybrid cloud data platform with Palantir’s next-generation operations platform for building applications. The integration will enable businesses to build and deploy AI-infused applications with IBM Watson and analyze vast amounts of data scattered across hybrid cloud environments – without the need for deep technical skills.  

Inderpal Bhandari, IBM’s Global Chief Data Officer, says the focus on hybrid cloud computing is a natural one as businesses realize the benefits of adopting a holistic approach to digital transformation that features the hybrid cloud, leveraging whatever combination of public cloud, private cloud and on-prem makes sense for them to optimize value.

See More: IBM Deepens Hybrid Cloud Strategy With Nordcloud Buy  

“As a global company with a very large number of clients across a multitude of industries, our goal is to get workloads in an optimal configuration that is efficient, flexible, and infused with AI. We realized that “meeting the workload where it is” is critical for end-to-end transformation of the enterprise – and that required a hybrid multicloud environment,” he saysOpens a new window .

While IBM’s rapid shift towards hybrid cloud computing makes the departure of the less-profitable Watson Health a natural one, IBM is not necessarily offering a billion-dollar-dud to prospective buyers. A few days ago, Doctor Watson scored a major win through a fresh collaborationOpens a new window with insurance giant Humana that boasts a 2019 revenue of US$56.9 billion, over 20 million members, and 46,000 employees. 

Thanks to the collaboration, IBM Watson Assistant for Health Benefits, an AI-enabled virtual assistant built-in the IBM Watson Health cloud, will help Humana’s 1.3 million Employer Group medical members and 1.8 million of Humana’s Employer Group dental members gain information about member benefits, coverage, claims, referrals and healthcare costs.

Do you think IBM’s Watson Health will find takers in the competitive healthcare analytics market? Comment below or let us know on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window . We’d love to hear from you!