International Business Machines (IBM 0.06%) has been betting big on artificial intelligence (AI). The company's AI-enabled Jeopardy!-winning cognitive supercomputer, Watson, has become the catch-all for the company's efforts in the area. Watson has been touted to revolutionize such diverse areas as cybersecurity, customer service, and even tax return preparation.

But nowhere is IBM's bet on Watson more evident than in the area of healthcare. The supercomputer's ability to analyze vast stores of data and recognize patterns make it a natural fit for medical applications.

Is there a doctor in the house?

IBM's tentpole program Watson for Oncology began in 2012 with a partnership with Memorial Sloan-Kettering Cancer Center doctors to tap their knowledge and catalog their specific expertise in rare forms of cancer. Those early collaborations produced impressive results and led to a full-court press to revolutionize healthcare. Watson is now addressing a variety of other medical areas including personalized care, patient engagement, imaging review, and drug discovery.

Truven Health Analytics CEO Mike Boswood, left, and IBM Watson Health General Manager Deborah DiSanzo, right.

IBM acquired Truven to bolster Watson's medical credentials. Image source: IBM.

Watson goes to medical school

IBM has made numerous acquisitions in pursuit of its healthcare agenda. Late last year, the company spent $1 billion to acquire medical image company Merge Healthcare. The company's 30 billion images would be a key component in training Watson to identify abnormalities in X-rays and MRIs. This came on the heels of a $2.6 billion acquisition of Truven Health Analytics, which aggregated and analyzed data from more than 8,500 hospitals, insurers, and government agencies. IBM had previously acquired cloud-based data analytics company Explorys for its 50 million clinical data sets, as well as medical care solutions company Phytel. The total of these acquisitions is estimated at more than $4 billion to fund Watson's medical education.

Dr. Watson, I presume...

Those investments appear to be paying off. Doctors at the University of North Carolina School of Medicine provided Watson with the records of 1,000 cancer patients, and it was able to provide treatment plans that concurred with oncologists' actual recommendations in 99% of cases. Additionally, Watson was able to provide additional options missed by its human counterparts in 30% of the cases, having been supplied with all the latest cancer research. This will provide effective cancer treatment to a wider variety of patients than ever before, while making every doctor with access to Watson a cancer expert.

Doctor looking at tablet reviews recommendations by Watson.

Watson is making advances in the fight against cancer. Image source: IBM.

Malpractice insurance

It is important to remember that all that glitters is not gold. IBM and Watson also partnered with the M.D. Anderson Cancer Center at the University of Texas back in 2012 to develop tools in the fight against cancer. The plan was to have Watson ingest medical literature, research data, and patient medical records, and with the use of AI, it would provide treatment recommendations and match patients with clinical trials.

In its highest profile misstep to date, IBM was forced to abandon the project late last year, while the cancer center's president resigned in disgrace. While audit reports suggest that project mismanagement was the culprit, it serves to illustrate that Watson can't fix everything. 

Foolish final thoughts

IBM has been divesting itself from its legacy hardware, software, and services businesses, while transitioning to cloud computing, data analytics, and AI-based cognitive computing. These newer businesses, which it has dubbed "strategic imperatives", grew 13% in 2016 to account for 41% of total revenue, an indication that the transition is accelerating.   

AI technology is being applied to a wide variety of industries, and new applications are being devised daily. IBM has focused on aggregating data and applying its cognitive chops and Watson's AI to helping find solutions for business, a different strategy from other companies in the field. This was a big gamble five years in the making, but as further advancements are being revealed, it appears IBM made the right call.