IBM sells Watson Healthcare's data analytics assets, a consulting firm: it's less competitive than other giants

On January 22, IBM reportedly announced an agreement with Francisco Partners to sell the medical data and analytics assets of its Watson Health business to Francisco-based investment fund Francisco Partner. The exact amount of the sale has not been announced, and the transaction is expected to close in the second quarter, but it is subject to regulatory approval.

Headquartered in San Francisco, Francisco Partner has been established for more than 20 years and has invested in more than 400 technology companies, making it one of the most influential private equity funds in the U.S. healthcare IT field. Upon completion of the acquisition, they will have access to Watson Health Insights, MarketScan, Clinical Development, Social Program Management, Micromedex and many other data and analytics businesses. These businesses will converge into an independently operating company, and the current management and customers will remain unchanged.

Tom Rosamilia, senior vice president at IBM, said in a transaction statement that this is a step towards further focusing on its platform-based hybrid cloud and AI strategy. IBM will continue to work with customers and partners in Watson, the AI business, and healthcare IT.

Healthcare cloud is undoubtedly the fastest growing cloud services segment in the world. Data from market research firm CIMSS predicts that the global healthcare cloud services market size will grow from $11.59 billion in 2020 to $52.3 billion by 2026, with a compound annual growth rate of 28.5%. The COVID-19 pandemic has significantly accelerated the pace of adoption of cloud services in the healthcare sector.

According to the 2020 market survey report, Software-as-a-Service SaaS accounts for 63.7% of the healthcare cloud services market, while Infrastructure-as-a-Service IaaS accounts for 26.0% of the market share.

The deal was well anticipated, with media reports last year that IBM planned to spin off its healthcare analytics business to streamline its business lines and focus on other cloud services. Since IBM is comprehensively promoting the transformation of cloud service giants, and the medical cloud is the fastest growing cloud market, why does IBM sell important data analysis assets in medical cloud services?

Paddy Padmanabhan, founder and CEO of Damo Consulting, a corporate IT consulting firm, was interviewed by Sina Technology and spoke his views on the deal. Padmaineman is an expert in the U.S. healthcare IT industry and the author of Healthcare Digital Transformation: How Consumerism, Technology and Pandemic are Accelerating the Future.

In Padmarnaman's view, IBM's sale of data analytics assets in medical cloud services is an expected deal. Because IBM is significantly less competitive in the healthcare cloud space than giants such as Google and Microsoft, Oracle has also gained a huge boost in this area through the acquisition of Cerner.

On January 4, Oracle announced a $28.3 billion acquisition of healthcare digital services provider Senna. With more than 40 years of experience digitizing electronic health records, Senna provides digital information systems for hospitals and health systems and will serve as Oracle's core asset in healthcare.

Padmaineman believes that AI services in the healthcare field are constantly evolving, and several major industry giants are investing heavily in cloud services and data businesses. However, according to the current market competition pattern, IBM is no longer an important competitor in the field of healthcare cloud services. The sale of Watson Healthcare's data assets means that IBM has decided to abandon Watson Healthcare's business exploration, but the deal will also help IBM shrink and focus and find new breakthroughs in the medical business.

Padmarnaman explained that the medical data analytics assets sold by IBM were originally built on the two major data analytics businesses of Truven and Merge Healthcare, which were previously acquired. IBM had hoped to have data analytics assets, put Watson's AI technology to life, and derive further understanding from big data, but IBM was clearly unable to implement this vision.

So they're now selling these data assets to Francisco Partners, and it's interesting to see how the new owner, Francisco, uses these assets. (Note: IBM bought Healthcare data analytics service Truven for $2.6 billion in 2016 and Merge Healthcare for $1 billion in 2015.) ）

IBM's decision to sell medical data assets also shows that it's not enough to have data in this area. The real value lies in the use of advanced analytics tools for data that bring significant improvements to real-world applications. IBM started out a few steps wrong, especially in cancer care applications, and they can't catch up with the mistakes they made.

He specifically explained that the medical and health service sector is a fiercely competitive battlefield for Internet giants. But these giants are always going around in various fields, and not every company can do a good job in the medical field. Apple also expanded badly in the healthcare space last year, and Amazon admitted that their Amazon Care business is not going well. IBM has lost out on cloud services opportunities in healthcare and is lagging behind its competitors in technologies like speech recognition.

Padmainemann believes that from this perspective, IBM's sale of Watson Health's data assets only shows that their own competition has failed, and does not mean that the application prospects of AI in the medical field are limited. AI is the most important area of technology investment in the healthcare system in 2021.

Of course, the application of AI in the medical field faces many challenges such as data quality and algorithm bias, but in the past year, there have also been giants that have made progress in this regard, such as the cooperation between Google and Mayo Clinic, and the cooperation between Microsoft and the medical consortium Trueta, which all indicate the application prospects of AI technology in the field of health care.

In November last year, Google announced a 10-year strategic cooperation agreement with Mayo Medical, the most influential healthcare provider in the United States, to explore cloud services and AI cooperation opportunities in the field of health care. In September last year, Microsoft announced a strategic partnership with Truveta, a U.S. healthcare services consortium, that will fully adopt Microsoft's healthcare cloud services and analytics software on its platform.