Latest Cringely from SA (posting entire article here for those who can't access complete link) --
http://seekingalpha.com/article/4004423-ibms-watson-already-failed
Summary
IBM is staking its future on several new technologies, especially its Watson artificial intelligence business.
Internal IBM documents suggest that Watson sales after three years are dismal.
Even if Watson and the other CAMSS businesses were profitable, they would each have to generate $20 billion annually to reach IBM's goals.
Such a 100 percent success rate has never happened before at IBM and it is not happening now.
As a reader of Seeking Alpha, I've seen several posts about IBM's (NYSE:IBM) Watson Artificial Intelligence technology and how Watson is an important differentiator that will drive IBM's growth in coming years. You can read such posts here, here and here. Unfortunately for IBM, these SA writer conclusions appear to me to be precisely wrong. I fear Watson is already a major failure for Big Blue.
First, let's set the scene. I found a very useful Watson timeline showing the technology began in 2008, but its Jeopardy win on TV didn't come until 2011. At that point, IBM announced that it would turn Watson into both a product and a service within two years. And by 2013, Watson-related news stories were saying IBM was already targeting healthcare and customer service with many other segments to follow as Watson morphed from a supercomputer application to the IBM cloud.
IBM notably announced a $1 billion investment in Watson in 2013 as well as a $100 million fund to promote third-party Watson development. Given that these announcements were five years after the first Watson news, three years after the Jeopardy win, and took place at the tony East Village address IBM CEO Ginni Rometty said was Watson's new headquarters, I think we can date Watson's commercial debut from that time.
It is now three years later still. Watson has been around in some form for eight years, and the creation of IBM's Watson business unit was three years ago. So is Watson a success?
It's very difficult to tell from IBM's reported financials whether Watson is a success or not. As I have already reported, the way IBM segments its revenue makes it difficult to see whether the company's so-called strategic initiatives are making money. This is especially the case for Watson, whose results are not only mixed up with revenue decidedly not from what IBM calls Cognitive Computing: IBM also splits Watson revenue across two different segments. So while IBM continues to talk a good game for Watson, it isn't at all clear whether Watson is delivering much in the way of sales.
Or at least it was not clear until now.
Recently, I came into possession of some internal IBM data concerning Watson product registrations. Almost anyone can try Watson for free, but to do so, requires first registering with IBM. There is pretty much no entry barrier for these registrations. If a single development group inside a corporation decides to give Watson a try, that counts for the whole company: they are IN.
Here are the Watson registration numbers and targets as of approximately one week ago:
Registration Summary
Registration Clients Business Partners Total
Total to Date 500 329 829
Target 2016 8145 4047 12192
% of overall target 6% 8% 7%
Let's parse these very real internal IBM numbers and decide what they mean. Clients are IBM corporate and institutional customers - everything from banks to universities to government agencies. So far, precisely, 500 of these have registered as Watson users. That number, in itself, is questionable. Precisely 500, really? But let's accept it. The client target for 2016 was 8,145, of which 500 represents six percent, so Watson is presently missing its target client registrations by 94 percent.
IBM business partners are companies that resell IBM's products or services. Watson business partners are specific to Watson. This chart says there are 329 Watson business partners, though IBM's 2016 target is 4,047. Admittedly, 2016 is far from over, but at this point, IBM appears to be 92 percent behind its target.
For a program that is at least three years old, this level of sales performance is dismal. If only eight percent of the companies that are supposed to be selling Watson have even minimal experience with the technology, it's difficult to say it is even broadly available. Certainly, cloud-like sales increases of 30+ percent per year aren't happening for Watson.
At what point will IBM admit this? Not until it is forced to.
If I were to hazard a guess why these numbers are so bad (understand this is only a guess), it's because the most prominently missing Watson customer is IBM itself. Big Blue has made the most fundamental mistake in high tech: they don't eat their own dog food.
IBM very carefully paints an image of itself based on hype, spin, and half-truths. It will tell you cloud is up 60 percent, but not give actual apples-to-apples numbers. Its cloud sales are heavily loaded with services business. The company's analytic sales are heavily loaded with mainframe software revenue. The only clear information is IBM's total revenue is still dropping. If IBM's revenue is falling, that means it is losing business faster than the new services can cover.
Watson is a solution in search of a problem. Watson was a marketing stunt someone thought could be turned into a $20 billion per year business. It doesn't matter if Watson is great technology or not. What matters is IBM has been killing its old businesses and needs several $20 billion-per-year new businesses to replace them.
What's not yet clear is how big these replacement businesses can eventually be. Remember they have to add up to $80-100 billion for IBM's rebirth story to be a clear success. This is darned near impossible for any company to do.
Can IBM make more than $20 billion in revenue from cloud? Can IBM make more than $20 billion from Watson/analytics/cognitive? Can IBM make more than $20 billion each on security, mobile, and social? What if IBM can only make $20 billion on security, mobile, and social combined? Then, IBM needs to make $40 billion on cloud and another $40 billion on Watson/analytics/cognitive. Remember Amazon's AWS is already close to being a $10 billion-per-year business. Is it reasonable for IBM to grow to twice AWS's size? No. It'll be lucky to reach half the size of AWS.
Watson/analytics/cognitive could be a great $5 billion-per-year business for IBM. So could cloud. That would imply IBM's CAMSS businesses with the most potential would contribute a combined $10 billion in revenue for a company that is used to selling $80-100 billion but is now losing 10 percent of that every year. Maybe through cloud and analytics, IBM's Global Business Services (GBS) and Global Technology Services (GTS) can generate $30 billion in revenue. Would that be enough to stop the decline and allow IBM to begin to grow again?
Just looking at IBM's earnings statements shows a clear and prolonged decline in business. CAMSS may be a great business strategy. The problem is CAMSS has very big shoes to fill. It is probably not realistic to expect any great business idea to be able to grow to a $20 billion business much less five of them to grow to $100 billion.
Success depends on context. IBM needs the Watson business unit to generate $20 billion per year for many years. We can look at IBM's businesses individually and believe they are successful and growing. Looking at this growth in the context of IBM's massive size suggests total revenue five years from now that is half of what it used to be and half of what Ginni Rometty says it will be. That is nowhere near what IBM presently describes as being successful.
This is like the old saying the "operation was a success, but the patient died." CAMSS could all be successful and IBM could still die.