Big Blue Bets Big On IBM Watson Group

The 400,000-square-foot building at 51 Astor Place in New York's East Village was once called the Death Star among skeptics, who scoffed at the idea of new development during the recession when demand was nonexistent.

But it landed a pretty high-profile tenant in IBM Watson.

Big Blue's cognitive computing division -- established in January with a $1 billion budget -- inked a deal for four floors and officially opened its doors late this month. A sign in the building's lobby now reads IBM Watson.

[Related: Former IBM Execs Think Up Smart Cloud Platform]

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It was a celebration and media frenzy the day of the headquarter's grand opening, but that's since given way to serious work for the more than 700 employees housed in the division's new home, charged with helping reinvent IBM in what the company's called the third wave of computing.

"The last time IBM stood up a group like the Watson Group was 20 years ago, so it absolutely is of pivotal importance to the business," said Steve Gold, vice president of the IBM Watson Group.

The significance of Watson can't be understated.

The technology, in a nutshell, is a computing system that eats up dark data -- that unstructured mass of social media, photos and other information floating out there that's difficult to capture for analysis -- and then learns from it. It's not programmed; it actually gets smarter over time. It turned heads when it beat out contestants in Jeopardy.

Headlines have sounded off the same questions since the Watson Group's establishment of whether Watson can help turn around the IBM business.

IBM reported this month third-quarter net income of $18 million, off 99.6 percent from the year-ago period. The company has reported revenue declines for 10 straight quarters, with third-quarter revenue down 4 percent to $22.4 billion.

"We are extremely bullish on Watson, but more importantly we're bullish on the business," Gold said, pointing to the company's 2015 road map, and the work around big data and mobile among other spaces. "There's a lot of great innovation. We also aren't afraid to divest the businesses that no longer embody the culture and spirit of what we stand for."

That includes IBM's announcement this month that it plans to rid itself of its semiconductor business by paying GlobalFoundries $1.5 billion to take on the chip business.

NEXT: What Watson Means For Businesses, Channel

Watson is still very much in the beginning phases, and it's unclear where it will be next year let alone five years from now. Whether there's a trickle-down effect to the channel remains to be seen.

"Does it redefine the channel? No," Gold said. "What this represents is a fundamental game-changer in an opportunity to use what you've developed by way of a physical product or service or capability, and enhance it and complement and augment what you are already doing in a way that becomes more meaningful to your end user."

Still, he said, Watson will no doubt redefine what the channel can do in the marketplace by helping channel partners differentiate their offerings.

"The way I think about this from a channel perspective, this is not only a new tool, a new offering, this is a new way that allows me to think differently," he said. "It basically removes the shackles and constraints that have historically been put on me by the various means to market and allows me to think much more creatively."

Advances for the group are happening as fast as Watson can process information and learn from it.

Late last year, the technology was made available to developers in the cloud to allow companies to create their own apps based off Watson's cognitive computing smarts.

"Watson began in research and, at the time, it was a challenge," Gold said. "Every decade or so, IBM takes on this grand challenge and it's unclear as to where it will ultimately evolve to. … We didn't know at the time what the commercial applications were. Coming out of Jeopardy, we began to realize that the opportunity to change certain ways industries operate was promising. The formation of the Watson Group was really the stake in the ground. We recognize, understand and are deeply committed to understanding this new era of computing."

It's this concept of a third wave of computing that has programmers chatty about Watson's potential, said Amir Husain, the founder, president and CEO of security analytics company Spark Cognition.

The Austin, Texas-based startup is partners with IBM Watson, SoftLayer and IBM Power, and got its start about a year ago with initial investments form Michael Dell, The Entrepreneurs' Fund and Tom Boone Pickens III.

NEXT: Why Startups Matter

The concept of if-then-else programming -- a process by which programmers essentially sit and try to come up with every possibility and judge every possible set of conditions -- has long been the norm.

"That age is really over," Husain said. "This cognitive age is really about algorithms finding patterns automatically. Across the software ecosystem you'll see these cognitive A.I. techniques being applied more and more. Because of the amount of data that's out there, if-then-else simply doesn't address it. And these kinds of self-evolving, learning systems are a very key ingredient to the future of the software industry."

The importance of partnering with startups such as Spark Cognition is seen as a key part in growing the Watson ecosystem. About $100 million of the $1 billion that's been allocated for the Watson Group is earmarked for venture funding, activity of which Gold oversees.

The group began with three partner companies using Watson to develop apps, and that has since grown to more than 100 with another 3,300 that have applied for the program.

The company doesn't break out how much it invests in each company or how much of that venture funding has been spent thus far. Investments have gone to health-care optimization platform maker Welltok and e-commerce company Fluid, among others, some of which have not been made public.

Within Watson's Astor Place headquarters are not only the group's workers and a design lab, but space for workshops and seminars. Eventually, Gold said, it will serve as a place for startups to actually incubate -- much like a traditional incubator program -- where company founders can set up shop, while being mentored and tapping into Watson resources.

The group's reach extends beyond New York's Silicon Alley startup scene via Watson Experience Centers in Boston; Raleigh, N.C.; London and other places throughout the world.

"Very quickly, we want to ensure that this technology is accessible in local markets," Gold said. "The physical presence in local markets will help us educate and enable how to think cognitively."

Roughly one year ago, IBM approached Denver-based Welltok to see how Watson could be used in the wellness space to help providers' population health managers incentivize consumers to make healthier decisions using its CafeWell product.

"[CafeWell's] dependent on personalization, so creating that personalized and adaptive plan for each consumer is really where we can leverage a lot of what the IBM Watson technology can do," said Co-Founder Jeff Cohen.

NEXT: Watson's Many Applications

Watson, for Welltok, took the technology to the next level in intelligence and personalization making use of it a "no-brainer," according to Cohen. The company recently raised $25 million as part of its $37 million Series C funding round.

"The ability to continue to get smarter and learn from what people are asking and what consumers are doing is really key, and it's not something we've done a lot in health care," he said.

But the application of Watson is broad and not just for life-and-death situations. Other industries, such as retail or hospitality, also stand to benefit.

That's why Watson officials reached out about a year-and-a-half ago to Terry Jones, founder of Travelocity and Kayak founding chairman, to have him visit IBM headquarters in Armonk, N.Y., to take a closer look at Watson.

Jones got excited after learning what Watson could do.

"When I saw this technology, I got really stoked about it," he said, "and really wanted to do something with it."

Jones' company WayBlazer takes the process of travel research to another level by using Watson to provide more personalized suggestions to travelers, using the data found on Facebook, Instagram, Twitter and other places.

"We can take the unstructured data of travel, the social data, the blog data, the editorial data, the map and geo-positioning data, maybe the demographic data about travelers about past trips and the traditional structured data [air fares, car rentals] and put that all into Watson and -- using natural language interface -- allow people to discover things about where they want to go that would take them days to search through this data on their own," Jones said.

Austin, Texas-based WayBlazer is set to launch in December via its first partnership with the Austin Convention & Visitors Bureau.

More uses will no doubt grow at a rapid clip as time wears on, according to Gold.

Watson represents what Gold called a "shining beacon" for the company, albeit still part of a much larger firing on all cylinders across the business to push IBM into its next act as a company.

"IBM has a great history of reinventing itself and change is not unique. … You have to constantly push the envelope and reinvent," he said. "You don't get to be a 100-year-old company and $100 billion business and not continue to have to be pushed for change, for the next big thing."