IBM may be trying to sell the Watson Health division for as little as $1 billion, according to an Axios report. The question is why is IBM fleeing the healthcare vertical as it seems to be heating up and at such a low price?
Last month, Oracle spent $28 billion to buy digital health records company Cerner. Last spring, Microsoft spent about $20 billion to buy Nuance, which is widely used in the medical industry, with 10,000 healthcare customers. That’s a lot of money, suggesting that companies are looking to embrace the healthcare vertical and willing to spend a lot of money to do so.
IBM launched Watson Health in April 2015 to much fanfare. It was to take Watson, IBM’s artificial intelligence platform, and put it to work on health issues. The argument went something like this. Even the best doctor cannot read all the available literature, but a computer can do it quickly and can suggest courses of action to increase the doctor’s experience and produce better results.
Then it did what IBM does when it focuses on something. It opened a fancy branch in Cambridge in September of that year. It also began to announce partnerships. He has ticked all the boxes in partnership with companies like CVS, Apple and Johnson and Johnson.
Then he started buying companies. The first acquisitions were medical data companies, Phytel and Explorys. This was part of a pattern. Then came $1 billion to Merge Healthcare, a company that would provide medical imaging data. It would later make its most expensive purchase, Truven Health Analytics, for $2.6 billion. In total, it spent $4 billion, according to reports, which seems a bit modest now compared to what Oracle and Microsoft just spent, but it was a lot of money in 2015 and 2016 when it was preparing.
This was all about taking a data-centric approach to powering Watson Health’s machine learning models. For some reason, it didn’t work as planned, but it was a big part of former CEO Ginni Rometty’s plan to modernize the company, focusing on areas like cloud and AI.
Rometti was optimistic when talking to the Harvard Business Review in 2017:
“Our moon photo is bringing world-class healthcare to every corner of the world. Part of this is already happening. Watson is being trained by the best cancer centers in the world and then deployed to hundreds of hospitals in China and India. Some of these areas only have one oncologist for perhaps 1,600 patients. People in these regions have not had a chance to obtain world-class medical care. Now they can, with Watson as an oncology consultant helping clinicians make decisions. And that’s just the beginning.”
But Rometti left in 2019 and his replacement Arvind Krisna has different priorities. He said Axios this broad view of health may have been too optimistic. That could explain why IBM is looking to leave, says Holger Mueller, an analyst at Constellation Research.
“IBM is really focusing on its hybrid cloud strategy. In the process, it is trying to get rid of all the assets that divert attention and capital, and risk reputational damage. Watson Health certainly qualifies for all three, so it’s no surprise that IBM can sell the unit,” said Mueller.
While IBM will likely continue to pursue healthcare business in other ways across the company, even if it ends up scrapping Watson Health, it would have to be considered a failed strategy after investing so much money in it and getting so little in return. Of course, it still qualifies as a rumor, even if it’s not a big surprise to see it happen.