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A Little Background

Watson is a supercomputer named for the former chairman and CEO of International Business Machines (IBM - Free IBM Stock Report), Thomas J. Watson. It was the result of a project, called DeepQA, a collaboration between an IBM research team and leading universities, that began in 2006.

Watson is perhaps best known for its debut on the quiz show Jeopardy! in 2011, when it competed against the show’s two top champions and won. According to IBM’s Web site, the program was chosen as “the ultimate test of the machine’s capabilities because it relied on many human cognitive abilities traditionally seen beyond the capability of computers, such as the ability to discern double meanings of words . . .”

Humans acquire such capabilities by interacting with others and via exposure to the world around them. To prepare Watson for Jeopardy!, IBM had to teach Watson skills, like how to process natural language and how to form hypotheses (as well as rank them according to the likelihood of their accuracy to arrive at an answer). The supercomputer reportedly also can learn from its mistakes. IBM says that Watson is now 24 times faster than at the time of the Jeopardy! competition, and is considerably smaller, having shrunk “from the size of a master bedroom to three stacked pizza boxes.”

More than a Toy

Since the Jeopardy! contest, IBM has been gradually putting Watson to work in helping to solve real life problems, notably in the healthcare sector. The company points out that medical information about doubles every five years, and it is impossible for doctors always to have access to all relevant data. Watson can quickly retrieve medical data and cross reference information from cancer patients to design better treatments by identifying which work best.

According to IBM, the financial industry also provides opportunities to put Watson to commercial use “to help make informed decisions about investment choices, trading patterns, and risk management”. In 2012, Citicorp (C) announced an agreement with IBM to explore uses of Watson in its businesses. There may also be opportunities to apply Watson’s technology in the retail and telecommunications businesses. However, we believe Watson hasn’t been a big money maker for IBM yet.

New Push to Commercialize Watson

In early January, IBM announced it will set up a new business unit called IBM Watson Group, “…dedicated to the development and commercialization of cloud-delivered cognitive innovations.” IBM says it doesn’t intend to sell customers a “Watson box”, but rather, Watson “will remain a service on the cloud.” It plans to invest over $1 billion in the operation. This sum includes $100 million to support the development of cognitive applications (apps) powered by Watson.

The Watson Group will be led by Michael Rhodin, previously senior vice president of Software Solutions, and have its own headquarters at New York’s Astor Place that will serve as an incubator for the development of Watson-based apps. It will employ about 2,000, but will also tap the expertise of IBM’s research, software, and services divisions, as well as experts in industries such as healthcare, financial services, and telecommunications. IBM indicated it will “engineer” Watson in order to deploy it on Softlayer, a cloud computing infrastructure business that it recently acquired.

IBM has already announced three new Watson-based services to help industries uncover connections in their research work; make it easier for researchers to derive Big Data insights without advanced analytics training; and help users share data-driven insights and develop applications. There has already been some interest in these offerings. The Wall Street Journal reported (January 10, 2014) that over 750 entities have contacted IBM about working with Watson. In January, Singapore-based DBS Bank said it intends to use Watson in its wealth management business to improve advice to affluent clients and customer experience.

IBM’s goal is for Watson to generate annual revenue of $10 billion by 2024. Data analytics is a growing, but no doubt competitive, area, and it will probably take some time for IBM’s Watson to achieve this objective. As mentioned, IBM will have to adapt Watson for use on Softlayer. And it’s unclear whether Watson will steal revenues from IBM’s other analytics products, although management doesn’t expect it to do so. Nonetheless, Watson’s potential is interesting. Time will tell whether IBM can turn this former research project into a money maker.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.