IBM has sold its underachieving IBM Watson Health unit for an undisclosed price tag to a global investment firm after almost a year’s worth of rumors that said IBM has been trying to exit this part of its business.
In a terse Jan. 21 announcement, IBM said that Francisco Partners is acquiring the healthcare data and analytics assets from the IBM Watson Health business unit, including Health Insights, MarketScan, Clinical Development, Social Program Management, Micromedex, and imaging software offerings.
Rumors about IBM wanting to sell its Watson Health unit – which reportedly brought in $1 billion in revenue annually but has failed to make a profit – have been circulating in the press at least twice since at least February of 2021. The reports said the move was being eyed so that Big Blue could get out of the healthcare market and focus its operations and sights on the lucrative cloud computing market.
A Jan. 21 report on the sale by Bloomberg said the value of the assets involved in the transaction total more than $1 billion, according to people familiar with the plans.
According to IBM’s announcement, which is the first time that the company has commented on a possible sale of IBM Watson Health since the rumors began, the transaction is expected to close in the second quarter of this year and is subject to customary regulatory clearances.
What is unclear from the company’s press release is whether the sale includes all the analytics and data holdings from Watson Health or if IBM will retain any part of that business at all. The release does not give any further details on the nature of the sale.
Timothy F. Davidson of IBM corporate communications did not respond directly to those specific questions when he replied Jan. 21 to an emailed inquiry from EnterpriseAI.
“The transaction announced today will result in healthcare data and analytics assets that are currently part of the Watson Health business, transferring ownership, upon closing (expected in 2Q22), to Francisco Partners,” Davidson wrote. “Also, upon close, the new standalone company is expected to continue its work as a healthcare AI, data and analytics business delivering industry-leading software, technology and automation solutions across the healthcare value chain.”
Another IBM executive, Tom Rosamilia, a senior vice president with IBM Software, said in a statement that the sale of the Watson Health assets to Francisco Partners “is a clear next step as IBM becomes even more focused on our platform-based hybrid cloud and AI strategy. IBM remains committed to Watson, our broader AI business, and to the clients and partners we support in healthcare IT. Through this transaction, Francisco Partners acquires data and analytics assets that will benefit from the enhanced investment and expertise of a healthcare industry focused portfolio.”
Under the terms of the agreement, the current management team will continue in similar roles in the new standalone company, serving existing clients in life sciences, provider, imaging, payer and employer, and government health and human services sectors, according to IBM and Francisco Partners.
Dan Olds, the chief research officer for Intersect360 Research, told EnterpriseAI that the sale of the Watson Health assets must be a disappointment to IBM.
“Watson Health was always the example that IBM pointed to when discussing how Watson was going to change the world,” said Olds. “Fast forward seven years and we find IBM selling off its Watson Health unit, which was supposed to be the crown jewel of the Watson product line.”
And though the unit has cracked $1 billion in revenue for the company, “a portion of that can be attributed to several billion dollar-plus acquisitions that bolstered the bottom line for the division,” said Olds. “However, Watson Health failed to make a profit, despite huge loads of marketing hype, thus placing it on the chopping block. There were some notable failures for Watson over the years including a five-year relationship with MD Anderson Cancer Center that ended after MD Anderson alleged that Watson did not provide safe and correct treatment recommendations. Ouch.”
The problem for IBM, said Olds, is that the company “led with marketing and the marketing vision was way beyond what their technology could deliver. AI can absolutely be a big boon to healthcare, but not the way that IBM implemented it. IBM paid more attention to gathering data and mining academic papers and less attention to consulting with real doctors who are seeing patients daily.”
Instead of taking the time to learn from the actual doctors who were supposed to work with Watson, IBM “devoted their time and resources to a top-down approach that they sold to administrators,” said Olds. “They not only put the cart before the horse, but they piled the cart high with visions of revolutionary improvements in patient care that did not come close to materializing. So, rather than radically disrupting healthcare technology, IBM’s Watson Health goes out with a whimper and will probably become a cautionary tale on how to not introduce new tech.”
Another analyst, Rob Enderle, principal of Enderle Group, said that Watson Health was never a battle that IBM was structured to win.
“The cost of maintaining a healthcare business, particularly during a pandemic, is daunting mainly because of the inability to access critical medical information to provide proper diagnosis and treatment,” said Enderle. “To do this successfully needs focus and investment, and IBM, which is undergoing a turnaround, had to pick its battles. Thus, the medical assets that IBM accumulated – which are significant – are more valuable to an entity like Francisco Partners that can make better use of them through their other investments.”
IBM’s interest in selling Watson Health was seen as part of a strategy by CEO Arvind Krishna to streamline the company and become more competitive in cloud computing and other markets.
The Watson Health unit integrates AI, analytics and data to create augmented intelligence for hospitals, insurers and pharmaceutical companies.
IBM Watson Health’s financial performance has been a concern for IBM’s bean-counters in the past as well. 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. That move came amid reports of declining sales and growing skepticism about the utility of machine learning for complex medical research, the story reported.
IBM’s troubles with Watson Health came at a time when competitors were finding success in the health care market. In December of 2021, Oracle acquired Cerner Corp. for $28.3 billion, which made the company a major player in electronic healthcare records (EHR).