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The technology giant asks Watson to get it growing again
Jan 11th 2014 | NEW YORK | From the print edition
IT S a silly project to work on, it s too gimmicky, it s not a real
computer-science test, and we probably can t do it anyway. These were
reportedly the first reactions of the team of IBM researchers challenged to
build a computer system capable of winning Jeopardy! , a television quiz show.
Yet within five years they had created Watson (named after Thomas Watson, who
built up the company), which used natural-language programming to understand
questions the way a human would, and massive processing power to find the
likeliest answer from vast amounts of data. In February 2011 it beat two human
Jeopardy! champions in a public showdown. Now, less than three years later,
Watson is being touted as a business opportunity potentially so lucrative it
can get Big Blue out of what has started to look like a serious growth problem.
On January 9th, with much fanfare, the computing giant announced plans to
invest $1 billion in a new division, IBM Watson Group. By the end of the year,
the division expects to have a staff of 2,000 plus an army of external app
developers working within its open Watson ecosystem . It also unveiled a raft
of new projects under development, on top of the handful already revealed in
health care, financial services and retailing with firms such as WellPoint and
the Cleveland Clinic. Mike Rhodin, who will run the new division, calls it one
of the most significant innovations in the history of our company. Ginni
Rometty, IBM s boss since early 2012, has reportedly predicted that it will be
a $10 billion a year business within a decade.
That is the sort of success Ms Rometty badly needs. Though IBM s profits have
kept rising, investors have become doubtful about where its future growth will
come from, so its shares have fallen by almost 13% since their peak last March
(see chart), even as tech stocks and the broader stockmarket have soared.
Stanley Druckenmiller, a hedge-fund manager, said in November that his bet
against the firm was one of the more higher-probability shorts I have seen in
years, because IBM is old technology being replaced by cloud technology.
Since Ms Rometty took over, investors have put up with IBM falling short of
analysts expectations for its revenues while it seemed to be making a shift to
higher-margin businesses. Now, though, some are worried that the strategy has
run out of steam and that Ms Rometty will not achieve the $20 of earnings per
share she has promised them in 2015 (from $14.37 in 2012). Analysts at CSFB, an
investment bank, recently said that IBM is making over half of its earnings
gains from lower-quality means such as share buy-backs and cost cutting.
IBM insists it remains on target to reach $20 a share. But Ms Rometty has
shuffled her team in an effort to boost performance. She has also moved IBM
into the cloud. In June it bought Softlayer, a rising star of cloud computing,
for an estimated $2 billion. That followed a painful loss to Amazon in a battle
to win a contract to build a private cloud for the CIA.
The cloud is a key part of the Watson strategy, with $100m allocated to invest
in building an ecosystem of independent Watson app developers. This is the
right strategy for getting rapid growth, says Jamie Popkin of Gartner, a
research firm. So too, he thinks, is IBM s initial focus on applying Watson to
industries such as health and finance, which rely on expensive human advisers.
There are good prospects of training Watson to understand best practice in
such things as cancer diagnosis and wealth management, and to produce sensible
results, based on its ability to sift through a mass of data.
Watson is now smaller, more efficient and 24 times faster than when it won
Jeopardy! , says Mr Rhodin. Although competitors from Apple to Microsoft are
also investing in some form of natural-language question-answering technology,
We are way out in front, he boasts.
The computer is some way from making doctors and financial advisers redundant.
However, IBM is well-placed to provide them with expert advice says Barney
Pell, founder of Powerset, a natural-language search engine bought by Microsoft
in 2008. Whether the firm can commercialise the opportunity fast enough to
silence its doubters is a question that, for now, not even Watson can answer.
From the print edition: Business