IBM sheds some Watson Health assets, refocuses on AI and cloud

In selling the data-based part of its Watson Health business to an investment firm, IBM signals that it wants to concentrate on core AI technology.
Arvind Krishna (CEO, IBM)

Arvind Krishna (CEO, IBM)

IBM’s grand plan to sell itself by the slice continues.

On January 21, 2022, IBM said it will hand health care data and analytics assets from its Watson Health business to private equity firm Francisco Partners in a deal reportedly worth around US$1 billion.

Last November saw the high-profile spinoff of its global services division to form Kyndryl, now valued at around US$3.7 billion, or a little over 3 per cent of Big Blue’s market capitalisation, and in 2019 it sold its Watson Marketing business, now rebranded Acoustic, to another private equity firm. But the strategy goes back further than that: in 2014 it sold its x86-based server business to Lenovo, and a decade before that its iconic PC business went to the same buyer.

It’s a strange moment to be winding down health care activities, when cloud infrastructure rivals Oracle and Microsoft are going all-in. In December 2021, Microsoft won regulatory approval from the European Union for its US$19.7 billion acquisition of Nuance Communications, whose AI-based transcription platform primarily serves health care providers, while Oracle doubled down on the market with a US$28.3 billion bid for Cerner, a health information and electronic health record provider that Oracle could turn into a major consumer of its own cloud services if it can wean it off AWS.

The latest sale is a sign, then, that IBM is serious about refocusing on its core platform-based hybrid cloud and on its AI activities, which go beyond Watson. IBM says it remains committed to Watson, but with two Watson-based business units now gutted, CIOs who have bought into the Watson AI platform may be worried about its future.

There are some grounds for optimism, however.

Exit strategy

The sale of Watson Marketing was part of a broader strategy to exit the marketing software market, begun the previous year when IBM flipped its Unica marketing software suite, acquired in 2010, to HCL Technologies. Rather than sell its own marketing tool, IBM has partnered with Adobe to offer its public cloud customers and users of the Red Hat OpenShift container platform access to Adobe Experience Cloud.

And IBM isn’t selling the core of Watson Health — or at least, not yet.

When IBM set up the business in 2015, it went on an acquisition spree to bring in customers it could upsell with Watson analytics tools.

Among the assets Francisco Partners is buying are Clinical Development, a reporting tool for clinical trials that IBM folded into Watson Health following its US$1 billion acquisition of Merge eClinical in 2015, and MarketScan, a database of health insurance claims data that came as part of its 2016 acquisition of Truven Health Analytics for US$2.6 billion.

Social Program Management (formerly Cúram Software) is also part of the deal. It’s a platform for managing government benefit payments that IBM picked it up for US$100 million in 2011, hoping to win more government business. It’s one of its few health acquisitions that predates the formation of Watson Health.

Other elements of the deal with Francisco Partners include the Micromedex “red book” for drug pricing, drug data and manufacturer information, a stack of imaging software offerings, and Health Insights, an analytics tool to help enterprises manage the cost of their health care programs. This is one of the few that did get integrated with Watson, as it includes Watson Change Detection, an additional-cost option for mining data to uncover what’s driving costs.

In the healthcare sector, Francisco Partners already owns stakes in providers of telemedicine (GoodRx) data interoperability (Edifecs), online prescription and pharmacy management (TrellisRx and RedSail Technologies) and appointment scheduling (Zocdoc) — but says it plans to create a new, standalone business with the assets it is buying from IBM. So what healthcare CIOs lose in having to manage an additional software vendor, they may gain in increased focus.

Still in the blue mix

Although the future of Watson Health barely got a mention in the conference call to discuss the company’s fourth-quarter results on January 24, 2022, IBM CEO Arvind Krishna was more forthcoming about the role of Watson in the company’s future.

The company has enhanced the natural language processing features of Watson Discovery, a search and text analytics platform for mining enterprise data, he said. Watson Discovery is one of eight pre-built Watson applications that IBM offers for searching, translating, speaking, and understanding text in the enterprise.

In addition, Krishna said, “We’re also combining and integrating products such as Turbonomic, Instana, and Watson AIops to offer a complete set of AI-powered automation software to address the significant demand.”

This puts Watson at the core of IBM’s infrastructure platform for hosting, orchestrating, and managing enterprise applications and data. IBM acquired application performance management specialist Instana in December 2020 and Turbonomic, a tool for resource allocation, in June 2021, showing that it is still using the same playbook that ultimately failed for Watson Health: building up its Watson offerings through acquisition.