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IBM Enters the Smart Assistant Market

By Leo Sun - Updated Mar 28, 2018 at 8:37AM

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Big Blue turns Watson into a smart assistant for enterprise customers.

IBM (IBM -0.61%) recently introduced Watson Assistant, its play on the growing smart assistant market, at its Think 2018 Conference in Las Vegas. Unlike consumer-facing assistants -- like Amazon's (AMZN -2.84%) Alexa, Apple's (AAPL -1.51%) Siri, and Alphabet's (GOOG -2.27%) (GOOGL -2.42%) Google Assistant -- Watson Assistant targets the enterprise market.

Watson Assistant represents an expansion of IBM's Watson AI platform. The company won't install Watson Assistant onto just any branded smart speakers. Instead, it plans to offer it to companies as a customized service.

Watson being used in educational apps.

Image source: IBM.

Big Blue's early partners include the Munich Airport, where Watson Assistant powers a Pepper robot that offers directions; Samsung's HARMAN Kardon, which is integrating Watson into a voice assistant for a Maserati concept car; and Chameleon Technologies, which is integrating Watson-powered voice technologies into a smart home meter.

Flexibility in a market of sprawling ecosystems

Watson Assistant isn't exactly a new product. It bundles together a combination of existing IBM products, like Watson Conversation and Watson Virtual Assistant, with some language and conversation analytics APIs.

However, IBM hopes that companies will use Watson Assistant as a foundation for creating customized voice assistants in cars, stores, and hotel rooms -- which could offer much more flexibility than Amazon, Apple, and Google's consumer-facing assistants.

That could also be a smart approach for companies that don't want to tether themselves or their customer data to those tech companies' ecosystems. IBM notes that each separate integration of Watson Assistant keeps its data to itself, so IBM isn't gathering a huge pool for other analytics purposes.

IBM Security.

Image source: IBM.

Speaking to The Verge, IBM Watson IoT VP Bret Greenstein stated: "If you start running the entire world through Alexa, it's an enormous amount of data and control to give to one company."

The tech world recently witnessed those potential consequences with Facebook's recent leak of user data from about 50 million accounts to data firm Cambridge Analytica.

IBM is also currently the market leader in blockchain technologies, which can be used to secure peer-to-peer transactions. The combination of Watson AI and blockchain, which IBM already offers on its Watson IoT (Internet of Things) platform, could make Watson Assistant an appealing option for security-minded enterprise customers.

What Watson Assistant means to IBM

Over the past few years, IBM focused on growing its "strategic imperatives" -- the cloud, analytics, mobile, security and social businesses -- to offset the sluggish growth of its legacy business hardware, software, and IT services units.

That turnaround was glacial, but IBM's rising strategic imperatives revenue finally helped Big Blue break a 22-quarter streak of annual revenue declines with 4% sales growth (1% growth on a constant currency basis) during the fourth quarter of 2017.

Analysts expect IBM to report 1% sales growth and roughly flat earnings growth this year. Those numbers might sound anemic, but they indicate that IBM's investments in next-gen technologies are paying off.

Back in 2014, IBM invested $1 billion in the creation of a dedicated business unit for Watson. In 2016, it set aside another $3 billion to groom Watson for the expanding IoT market. Watson has already been integrated into AI solutions for various industries, including healthcare, cybersecurity, education, weather forecasts, and even fashion design.

IBM doesn't disclose Watson's stand-alone revenues. The platform is included in its Cognitive Solutions group, which includes other business software. That unit's revenue rose 3% annually (flat on a constant currency basis) and accounted for 7% of IBM's top line. The company noted that rising revenues from Watson solutions and security was partly offset by softer demand for its traditional analytics products.

The road ahead

It's unclear if Watson Assistant will gain enough traction in the smart assistant market. But its flexibility, security, and lack of ecosystem puppet strings could make it an attractive choice for enterprise customers.

However, investors shouldn't read too much into the news and assume this means IBM is gearing up to tackle Amazon, since it's pursuing a completely different market.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Amazon and Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook. The Motley Fool is short shares of IBM and has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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