Call 2016 the year International Business Machines' (NYSE:IBM) Watson Artificial Intelligence (AI) product went from gimmick to practical tool.

The company has spent years developing public interest in the concept -- Watson went on Jeopardy!, Watson beat chess champions. In past years, the AI did everything except serve as a viable business. That changed in 2016 when IBM announced a variety of real-world uses for Watson through its Cognitive division.

Over the past year, the AI did everything from power driverless vehicles to help battle diabetes. It was a coming out party for technology that sometimes seemed more science fiction than science. Over the past year, IBM turned a corner and started showing how Watson could serve as a brain for business -- and like a real brain, it learns, adapts, and can get smarter.

IBM's Watson helps process healthcare knowledge.

IBM'S Watson has been used to create healthcare products. Image source: IBM.

What does Watson do?

IBM offers various APIs where Watson can be adapted to different business uses. The company laid out how that might help in practical ways on a Watson web page.

  • Analyze and interpret all of your data, including unstructured text, images, audio, and video.
  • Use machine learning to grow the subject matter expertise in your apps and systems.
  • Provide personalized recommendations by understanding a user's personality, tone, and emotion.
  • Create chat bots that can engage in dialog.

Essentially, IBM threw open the doors to Watson, making it very easy for clients to use the AI for everything from customer service to analyzing data. That was an offer that had a lot of takers with companies not only paying to use Watson, but also house their uses of the technology on IBM's cloud.

The company believes it has turned a corner

IBM has been trying to move away from its legacy business and transform into a company that helps others use data better. That includes Watson moving heavily into providing cloud-based services. The company finished fiscal year 2016 with $13.7 billion in cloud revenue, which was 17% of IBM's overall revenues.

"The debate about whether artificial intelligence is real is over, and we're getting to work to solve real business problems," said CFO Martin Schroeter during the company's Q4 earnings call, which was transcribed by Seeking Alpha (registration required). "As we move into this new era, it's important to understand what enterprise clients are looking for. They need a cognitive platform that turns vast amounts of data into insights, and allows them to use it for competitive advantage. They need access to a cloud platform not only for the capability, but for speed and agility. And they need a partner they trust, and who understands their industry work and process flows."

Schroeter explained that the company was confident Watson and its cognitive technology were up to the task. He said the company was well-positioned for where it needs to go.

"We've designed Watson on the IBM Cloud to allow our clients to retain control of their data and their insights, rather than using client data to educate a central knowledge graph," Schroeter said. "And we're using our tremendous industry expertise to build vertical solutions and train Watson on specific industry domains."

Watson is ready now

As AI becomes the next big thing, Watson (and IBM) stand ready to take advantage. The company has not only made strong business partnerships with the brand in 2016, it also achieved a high level of customer awareness.

IBM's AI is a smart solution that can drive knowledge, power business, and create new markets. The company proved it can do that in 2016 with products like Watson Health, which "provides cognitive insights on our enterprise-grade Watson Health Cloud, and leverages broad datasets that we own, including 100 million electronic health records, 200 million claims records, and 30 billion images," according to Schroeter.

The company now has 7,000 Watson Health employees, including doctors, nurses, health policy experts, and 1,000 data scientists.

"We brought this together because you can't change the way healthcare works, or work on curing cancer with public data alone," Schroeter said. "You need clinical data, payer data, images, all of which is private. You need the expertise of the leading oncologists and geneticists."

In addition, 2016 included the launch of Watson Financial Services, which offers targeted solutions, bringing together cloud, cognitive, industry, and ecosystem capabilities. That use of Watson helps banks navigate regulatory concerns.

Those are just two of the major examples of how IBM used Watson in 2016, but it's clear that the AI fully established itself as a useful, versatile platform. That was a big win for IBM, which sets the company up well for 2017 and beyond.

Daniel Kline has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.