IBM bets its future on machine learning and Watson Health

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IBM ($IBM) is the largest analytics provider in the world, with nearly $18 billion in revenues last year.

Watson Health, which launched last April and is based on the machine-learning capabilities of supercomputer Watson, is its top initiative to keep that growing. Watson Health is built on the combination of a trio of acquisitions with IBM's own existing analytics capabilities.

In August, IBM said it would buy image management player Merge for $1 billion. That was preceded in April by the purchase of population health company Phytel and cloud-based healthcare intelligence Explorys, which spun out of the Cleveland Clinic in 2009. These three acquisitions are the basis for what Watson Health is slated to become.

Martin Schroeter, IBM senior vice president and chief financial officer

"We're the largest analytics provider and we'll extend that lead by moving into new areas including Watson Health and Watson Internet of Things," said IBM SVP and CFO Martin Schroeter on the company's latest earnings call.

He continued, "In Watson Health, we are integrating our own organic capabilities with content acquired through Merge, Phytel and Explorys. Healthcare is a new revenue and profit opportunity for us as we change the face of healthcare through our cognitive platform to provide value to providers, payers and partners."

Healthcare is slated to be among the first major applications of Watson. "We will layer in Watson to give it the cognitive capability to apply machine learning at scale. This then gives us the ability to expand this platform capability to industries beyond weather, like health," Schroeter concluded.

And that's expected to blossom into more service revenues for IBM. Watson Health is largely sold as a service and it's already being used by a slew of healthcare companies including Medtronic ($MDT), Johnson & Johnson ($JNJ) and Novo Nordisk ($NVO).

IBM has already tagged healthcare as one of its top growth areas over the next decade--and it's dedicated to continuing its investment in capabilities for this industry.

- here is the 2015 earnings announcement and transcript

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