IBM CEO explains why he offloaded Watson Health: Not enough domain expertise

And not enough customers, Shirley?

IBM chairman and CEO Arvind Krishna says it offloaded Watson Health this year because it doesn't have the requisite vertical expertise in the healthcare sector.

Talking at stock market analyst Bernstein's 38th Annual Strategic Decisions Conference, the big boss was asked to outline the context for selling the healthcare data and analytics assets of the business to private equity provider Francisco Partners for $1 billion in January.

"Watson Health's divestment has got nothing to do with our commitment to AI and tor the Watson Brand," he told the audience. The "Watson brand will be our carrier for AI."

Two examples of tech still nested under the brand include Watson Order, which is being rolled out at a number of drive-thrus at fast food chain McDonald's to automate order taking; and Watson AI Ops, which is designed to make IT operations more efficient.

"So then why divest Watson Health?" asked Krishna. "It's a question of verticals versus horizontals. We believe that we are best positioned to take these technologies. We will always have an industry lens but through our consulting team. We want to work on technologies that are horizontal across all industries."

He added: "Verticals should belong to people who really have all of the domain expertise, they have credibility in that vertical. And so I think that the healthcare companies, people in medical devices, they will have the credibility to carry out how AI is applied to health in depth."

Maybe Oracle should take note after its $28 billion plus purchase of Cerner. Maybe not.

In 2016, IBM bought financial consulting business Promontory, tasking its employees with training Watson on regulatory information in a bid to automate companies' compliance with the rules in a highly regulated industry. It also bought other assets in healthcare.

Asked if the vertical go-to-market strategy hadn't worked for Big Blue, and if it had found gaining traction difficult, Krishna said:

"I'm completely convinced that AI as applied to healthcare, to financial services, to compliance, in that case, regulatory compliance, is going to be a massive market. That said it is going to be, I think it's a decade, maybe two decade-long journey to get there. And the people who get there? I think the world has shown [they] are those with massive depth in the domain area.

He said that to succeed in health, "you're going to need doctors and nurse practitioners to speak to the buyers of Watson Health. That's not the IBM go-to-market field force, so there's a misalignment. Ditto in Promontory, you're going to need ex-regulators and accountants to go talk to people worrying about financial compliance. So, that's a little bit different than us."

It's also a little different to what IBM said almost six years ago, when Bridget van Kralingen, senior veep for IBM's industry platforms team, said: "What Watson is doing to transform oncology by working with the world's leading oncologists, we will now do for regulation, risk and compliance."

IBM still sells Watson solutions in financial services, advertising, business automation, and video streaming and hosting.

As for AI in the enterprise, IBM's chief said inflation, labor costs and the world undergoing a "demographic shift" means that "there are fewer people with the skills" and so AI and automation will be "applied to more and more domains."

Krishna added: "I don't believe that trend is going to reverse in the next few decades." ®

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