IBM delivered its second quarter earnings this week and it held no surprises. For the 21st quarter in a row — five years and counting — its revenue was down year over year, although it did beat analysts’ expectations for earnings.
And there is still more downhill terrain ahead, according to Jefferies' analyst James Kisner, who predicts the stock could fall an additional 18 percent (it is already down 7 percent this year).
Kisner went on to discount the possibility that IBM’s famed Watson supercomputer could pull IBM out of the muck. "As we spoke to a lot of industry contacts and customers, and competitors, they all had the same sort of comment: IBM is an expensive solution," he told CNBC.
Taking Aim at Watson
IBM responded to the criticism with a statement,
"Watson is the world's leading AI platform for business. No other company has the scope of enterprise AI engagements as IBM, from 50 hospital systems around the world deploying Watson for Oncology, to companies such as H&R Block, GM and Credit Mutuel leveraging Watson to transform their customer experience."
IBM did not respond to calls from CMSWire requesting comment.
Alas for Big Blue, this is not the first time someone has taken aim at Watson.
Watson, simply put, is IBM’s baby — able to combine artificial intelligence and analytical software to answer questions posed to it in natural language. It has bet the farm on the product so when critics come out of the woodwork and take aim at its capabilities, it raises some interesting questions.
Do these critics have a point? How should IBM — or any company disparaged in this way — respond? And from a more global perspective — even if some critics are blowing smoke, can IBM withstand the assault? Is it possible that IBM’s impeccable brand can, in the end, be tarnished?
Do the Critics Have a Point?
Every product, especially one from a company with the credentials of Big Blue, will have its critics. But few take aim the way Chamath Palihapitiya, CEO and founder of the venture capital firm Social Capital did earlier this year when he told CNBC, "Watson is a joke …" and "the companies that are advancing machine learning and AI don't brand it with some nominally specious name that's named after a Sherlock Holmes character." (Watson was named after IBM's first CEO, Thomas J. Watson.)
"I think what IBM is excellent at is using their (sic) sales and marketing infrastructure to convince people who have asymmetrically less knowledge to pay for something," Palihapitiya said.
Palihapitiya may not have all his facts straight, but he is not alone with his criticism.
Brian Clark, CEO and co-founder of Ascent Technologies, also takes exception with Watson’s capabilities — specifically, its recently released Watson for Financial Regulation — although Clark’s opinion is stated with more nuance and qualifiers than Palihapitiya’s fighting words.
"I do have questions about Watson’s efficacy," Clark told CMSWire, namely that Watson's generalized data modeling almost negates its ability to perform domain specific tasks that are so key to this area. It is crucial that a category such as financial regulation needs to have the functional underpinning of domain experience, he emphasizes.
"Watson is using the same top down approach in financial services that it does in other categories — it is using a sample set of some 30 financial institutions while there are thousands of regulatory variables that are constantly changing."
While that may work for marketing or retail, he says, financial regulation requires more accuracy.
Should IBM Take the Bait?
It doesn’t have to respond at all to a few stray interviews, Don Tanner, co-founder of Tanner Friedman, a crisis communications consultant, told CMSWire. IBM might discredit or view as biased any comments from CEOs of competing products, said Tanner.
But there may come a time when it may want to reconsider its reticent strategy depending on the answers to certain questions, said Tanner. "'Who else is paying attention?' 'What is the platform on which these comments are being distributed?' and perhaps most painfully to IBM, 'Are people likely to believe the critiques?'"
IBM didn't hold back in its earnings call. As IBM CFO Martin Schroeter noted when talking about IBM’s mindshare in the health care industry,
"... in the second quarter we saw Watson deployments continue to expand globally. The cognitive opportunity is a global one, it's not centered in New York or Boston or Silicon Valley; but you can't just look and listen in those places. In healthcare alone, you'd miss that this quarter the first healthcare provider in Latin America is deploying Watson for oncology, and Baheal Pharmaceutical Group is bringing Watson for genomics to clinicians across China. In fact, 80 percent of the hospitals who've adopted Watson for oncology are outside of the U.S., and that's just healthcare ….” (transcript by Seeking Alpha).
Is Watson Unbreakable?
Jeff Skipper, CEO of Peacebridge Performance and a former IBMer, does not think much of the criticism lobbed at IBM and suggests IBM just ignore it. "The Watson program has done so much already; it has a very credible history. Furthermore they are not done yet. The vision continues and Watson will go on to do more amazing things in areas like health and financial services."
But when asked whether the Watson brand was unbreakable, Skipper paused. "Things can always go sideways," he said. "Look at Uber, no one would have thought a few years ago that it could be seriously hurt by internal issues and some real missteps."
Watson is doing a lot of things right, he continued. "But you can never say with 100 percent certainty that a company or brand is unbreakable."