IBM is selling its Watson Health assets

IBM said on Friday that it will sell the health data and analytics assets of its Watson Health unit to private equity firm Francisco Partners.

The deal signals that IT giant IBM is moving away from its ambitions in the healthcare space to focus on building hybrid cloud computing capabilities, an effort that has accelerated since Arvind Krishna took over as CEO in 2020.

IBM created Watson Health as a separate business unit in 2015 to use data to help doctors, researchers and insurers solve some of the biggest problems in healthcare.

The company has invested in a series of agreements to acquire health data and has taken on challenges ranging from improving diabetes care to overhauling cancer care.

But the bold gamble did not pay off. The Wall Street Journal reported nearly a year ago that Watson Health generated about $1 billion in annual revenue and no profit, and that IBM was considering selling the business.

The healthcare technology space has also become increasingly competitive. Google in 2019 confirmed a partnership with Ascension, one of the largest non-profit healthcare systems in the country, to collect and analyze patient health data.

Last April, Microsoft spent $16 billion to buy healthcare artificial intelligence developer Nuance to pair with its Microsoft Cloud for Healthcare business. And last month, Oracle said it would acquire healthcare software company Cerner for $28.3 billion.

“The sale of Watson Health has been long overdue,” Paddy Padmanabhan, CEO of health and technology consulting firm Damo Consulting, said via email. “IBM was clearly not gaining much traction in the healthcare market, while others such as Google and Microsoft have advanced.”

Watson Health was born out of IBM’s biggest Watson effort, which aims to use artificial intelligence to solve a range of problems for businesses and consumers — from creating a computer that can debate humans to engaging sports fans in major events.

IBM remains committed to its other Watson projects, said Tom Rosamilia, senior vice president of IBM Software, in a statement.

Under Krishna, IBM has been working to transform itself from a legacy IT service provider to a modern cloud business, a strategy driven by its 2018 acquisition of open source software provider Red Hat, which Krishna helped broker.

The company is making a big move on the “hybrid cloud” – a setup where companies can use multiple clouds in addition to on-premises servers.

In late 2020, IBM announced that it had set aside $1 billion to invest in adding other companies to its hybrid cloud platform. A month later, IBM announced the spin-off of a quarter of the company to focus on the cloud.

The terms of IBM’s agreement with Francisco Partners were not disclosed. Watson Health’s current management team is expected to remain in the new entity, according to the two companies.