IBM Bets Big on Watson, Big Data

For the IT bellwether, combining big data solutions with futuristic computers has become reality.

Jan 9, 2014 at 4:00PM

The good news for big data providers like IBM (NYSE:IBM) and Hewlett-Packard (NYSE:HPQ) is that chief investment officers (CIOs), according to a recent report from Gartner, will have business intelligence (BI) and big data solutions at the top of their minds over the next several years.

The bad news, Gartner says, is those same CIOs that can't stop thinking about the possibilities that big data and BI bring, probably won't act on those thoughts until 2016. At least not in any significant way. For industry-leading IBM, and others like No. 2 big data provider HP, Gartner's research could be somewhat depressing. But not for IBM, and that's why it's the top dog in big data.

Laying the foundation
At first glance, IBM's last earnings report was only so-so, primarily because of lower revenues nearly across the board. But there were two bright spots worth noting. One, IBM reported a huge jump in another rapidly growing market, cloud-related solutions, ending Q3 2013 with annual cloud revenues more than 70% higher than the previous year.

Another area of impressive growth was IBM's business intelligence unit, which was up 8% year to date compared to 2012. Considering IBM generated about $1.3 billion of big data revenue in 2012, an 8% increase is nothing to sneeze at, particularly taking into account Gartner's big data estimates.

For a company like IBM that generates around $100 billion in annual revenues, $1.5 billion in annual big data revenue, give or take, doesn't seem worth getting excited about. But like Fool investors, IBM is investing for the long term. Eventually, CIOs will get a better handle on what big data brings to the IT table and companies like IBM, and to a lesser extent HP with its 2012 big data-related revenues of $664 million, will reap the rewards.

Going forward
As it turns out, IBM must not have read Gartner's memo about CIOs and big data. Watson, the quaint name IBM gave its "cognitive" computing marvel, is already gaining traction for use in big data. Watson, as you may recall, was the computer that beat mere humans in Jeopardy! a few years ago. Not only does Watson understand English, it actually learns from responses. Watson may seem like the makings of a sci-fi movie, but IBM sees it as the ultimate big data solution -- and it appears prospective clients think so, too.

Today, IBM announced that Asian financial giant DBS Bank will deploy the supercomputer utilizing IBM's cloud-based, Watson Engagement Advisor big data solution. And DBS is hardly alone. Big hitters like WellPoint and Royal Bank of Canada, among others, either have or are in the process of, working with IBM on implementing Watson solutions.

In a market that has almost unlimited potential, Watson and a host of other big data and BI solutions puts IBM head and shoulders above HP, and others wanting a piece of the big data pie. If there were any doubts about IBM's commitment to big data, its decision to separate Watson and affiliated solutions into its own, $1 billion division should answer the naysayers.

Final Foolish thoughts
When CEO Ginni Rometty said earlier this year that IBM was targeting big data and related revenues of a whopping $16 billion by 2015, some may have scoffed at the notion. But when Rometty said IBM's primary focus would be big data in the years ahead, she wasn't kidding. Now, with Watson and IBM's industry-leading big data revenues, Rometty's changed her tune: to an estimated $20 billion in big data revenues by 2015.

Is $20 billion overly aggressive? Maybe, but if any company can do it, in spite of Gartner's big data estimates in the next couple of years, IBM is it. For Fools with time horizons of a couple years or more, investing in big data is a sound bet, and IBM is holding all the cards.

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Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Gartner and WellPoint. The Motley Fool owns shares of International Business Machines and WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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