IBM Reportedly Looking to Sell its Unprofitable Watson Health Business 

IBM’s Watson Health business brings in $1 billion a year in revenue, but because the unit still isn’t profitable, Big Blue is reportedly looking to sell it to focus its operations and sights on the lucrative cloud computing market.

The company’s potential interest in selling Watson Health, which was first reported by The Wall Street Journal on Feb. 18, is part of a strategy by CEO Arvind Krishna to “streamline the company and become more competitive in cloud computing,” according to the Journal.

The story said IBM is “exploring a potential sale” of Ithe unit, but few other details were revealed,  according to unidentified sources who are familiar with the matter. “IBM is studying alternatives for the unit that could include a sale to a private-equity firm or industry player or a merger with a blank-check company, the people said.”

The Watson Health unit, which integrates AI, analytics and data to create augmented intelligence for hospitals, insurers and pharmaceutical companies, is not profitable despite bringing in about $1 billion in annual revenue, according to the Journal.

Carolyn Castel, a spokesperson for IBM Watson Health, told EnterpriseAI that the company is “not commenting on rumors or speculation.”

Earlier Red Flags

Image credit: IBM Watson Health

Watson Health was started up by IBM in 2015, but this isn’t the first time that the business unit’s financial performance has been a concern for IBM’s bean-counters.

In April of 2019 IBM halted the development and sales of its Watson AI drug discovery tools, citing disappointing sales, according to an earlier EnterpriseAI story. With the move, the company shifted the focus of its Watson Health offering to “clinical development” as it readjusted its market strategy. The move came amid reports of declining sales and growing skepticism about the utility of machine learning for complex medical research, the story reported.

At the time, some healthcare industry experts noted that AI tools such as Watson may be better suited to applications like diagnostic imaging, where they often outperform humans in terms of objectivity.

Interestingly, an AI healthcare assessment study done by KLAS Research in October of 2020 found that Microsoft was rated as having the best AI tools for healthcare providers among the tech giants, while half of the study’s respondents viewed IBM’s Watson Health offering as “weak,” according to the study.

“Organizations passed on IBM due to skepticism about outcomes as well as concerns about cost and over-marketing,” the study noted, with skeptics concluding that “IBM’s marketing outpaces their delivery.”

Potential Sale of IBM Watson Health Not a Shock: Analysts

Dan Olds, Gabriel Consulting

“I’m not really surprised if IBM is indeed shopping Watson Health Care around,” Dan Olds, principal analyst with Gabriel Consulting, told EnterpriseAI. “They haven’t seen much success in this area, which they initially believed would be their strongest segment. In fact, they had some large public failures with Watson in healthcare, most notably in the cancer field.”

In the case of Watson Health, a potential sale of the unit is not a reflection of a poor future role of AI in health care, said Olds. Instead, the unprofitable status of Watson Health is due to IBM itself, he said.

“IBM’s initial approach misfired due to how the solution AI was trained and developed,” said Olds. “It didn’t conform well to how doctors work in the real world and didn’t learn from its experiences with real doctors – it was primarily learning from synthetic cases, not real life cases.”

IBM “tried to bite off too much with Watson Health and ended up over-promising and under-delivering,” he explained. “I believe that there’s a place for IBM in this market and for a Watson-like solution, but that the design of it needs to be more greatly influenced by practicing doctors rather than technologists.”

Karl Freund, Cambrian AI

Karl Freund, the founder and principal analyst of research firm Cambrian AI, agreed.

“I think this [potential] decision is the result of the combination of things,” said Freund. “The sales force must be highly trained in AI and healthcare, so this is best left to a healthcare company. IBM needs to focus on offering world-class horizontal tech and infrastructure. Watson may be a good horizontal tech, but going deep into a vertical is tough.”

Rob Enderle, Enderle Group

Another analyst, Rob Enderle of Enderle Group, said that while healthcare was the initial target for Watson Health, issues concerning data sharing made implementation problematic in getting the solution to meet expectations.

“Other industries don't have as much of a problem because they can rely more on their information,” said Enderle. “But to do healthcare, you need to pull from many various sources, each of which is very different and wrapped with layers of protection to prevent the unauthorized sharing of the related information.  This has had a substantial adverse impact on the efforts to find drugs that could mitigate the COVID-19 pandemic and Watson's ability to meet its true potential.”

The difficulties in pulling profits out of Watson Health shows “how difficult it is to do healthcare,” said Enderle. “The pandemic clearly shows the need is substantial.”

What’s needed, though, is a “dedicated effort, and IBM doesn’t want to be a dedicated healthcare provider but more of a generalist,” said Enderle.