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CEO Daily: Friday, October 16

I spent yesterday afternoon with colleagues at IBM Watson in Manhattan’s East Village – only 30 miles from the company’s Armonk headquarters, but a world apart. (No ties, scribbling on the walls, etc.)


What began as a parlor game – can a computer play Jeopardy? – has become a desperately serious enterprise, on which IBM management is betting the future of the company. “Our moon shot,” says CEO Ginni Rometty.


Watson is an attempt to leapfrog the current generation of big data services, which rely largely on structured data and rules-based computer calculations, to create a service that ingests vast amounts of information and images from disparate sources, learns from that data, responds to natural language questions, and provides real insights. The group is making its first big bet in health care, with hopes of vastly improving the ability of clinicians to diagnose illnesses, and greatly accelerating the ability of companies to discover and test new treatments. It will move from there to finance, education and the broader “internet of things.” It is also creating APIs for small businesses. While there, we met Amy Gross, who is using Watson to build a service that will help shoppers find wines that suit their tastes.


“This is the most incredible thing I’ve ever seen in my career, “ says John Kelly, who leads the Watson effort. He currently employs more than 700 PhD scientists, and that number is growing fast. Because scale is so important in the effort, Kelly believes there are probably only three companies that can compete – IBM, Google and Microsoft. And he clearly likes his company’s odds.


He also enjoys strong support from the boss. IBM has racked up thirteen straight quarters of sales declines as its traditional businesses falter, but Rometty says it is managing for the long haul. Says Kelly: “I’ve gotten everything I’ve asked for.”


Enjoy the day. More below.


Alan Murray

Top News

A year-end rally for stocks?

In the wake of a 10% drop in the stock market’s value in the late summer this year, some are building the case that a rally should continue to occur to close out 2015. There are even predictions of fresh highs by the end of the year. By late August, the Standard & Poor’s 500 had slipped 12% from its May peak, while the Dow Jones Industrial Average was also down in the double digits. But markets are recovering, partly because Wall Street doesn’t see an interest rate hike until 2016, nor are there real worries about overvaluation. USA Today

For IPOs, investors want profits

Worries about the economy are leading investors to take a harder look at companies that want to launch initial public offerings, prompting some skepticism about IPO issuers that aren’t very profitable or carry a lot of debt. Those worries were highlighted this week when grocery chain Albertsons Cos. delayed its IPO. There have also been a slow of poor debuts from fast-growing but money-losing health-care and technology companies, a shift from earlier this year when IPOs were performing very well. WSJ (subscription required)

Nevada bans fantasy sports firms

Unlicensed fantasy sports companies, including DraftKings and FanDuel, have been told they must cease and desist in Nevada, the latest blow to the startups that have been generating news since it was alleged a DraftKings employee used insider data to win $350,000 on FanDuel. Nevada didn’t ban the startups outright – it just now says they are gambling operators, and thus need to obtain licenses to operate in the state. Fortune

Theranos halts most testing

In the wake of the Wall Street Journal’s big story that raised questions about hot blood-testing startup Theranos, it is now being reported that the firm – under pressure from regulators – has stopped collecting tiny vials of blood drawn from finger pricks for all but one of its tests. FDA inspectors showed up unannounced at Theranos, a source said, a probe that stemmed from data submitted to the agency in an effort to win approval for the startup’s proprietary testing methods. WSJ (subscription required)

Wall Street backs Bush, Clinton

Jeb Bush, the former governor of Florida, is the presidential candidate that has received more financial backing than any competitor – Democrat or Republican – from employees of the major Wall Street banks for money raised between July and September. The second most popular candidate was former Secretary of State Hillary Clinton. The money they raised from big bank employees was relatively small: $107,000 for Bush and $84,000 for Clinton (they both raked in millions overall). Still, no other candidate came close. Reuters

Around the Water Cooler

Dysfunction at Tribune

The newspaper business is a tough one to be in today. Print ad revenue is falling sharply, while digital revenue is growing too slow to make up the difference. At Tribune Publishing, woes are escalated by some questionable management decisions, including a reported request by the CFO to ask two papers to downwardly forecast their ad revenue estimates. Tribune has been busy cutting costs, but as Fortune reports, at some point that is going to make it tough to run the local papers. Fortune

SeaWorld to fight state rule

SeaWorld is planning to challenge a state ruling that banned the company from breeding captive killer whales at its San Diego park. The pursuit of legal action comes a week after the state backed a $100 million expansion of SeaWorld’s tanks but also made other restrictions, including breeding and a ban on the sale or transfer of whales. SeaWorld alleges those actions went beyond the state commission’s jurisdiction. Associated Press

VW insider that looms large

Questions remain about the role of Volkswagen AG’s former chairman and largest shareholder, Ferdiand Piech, who wields a lot of power as the German automaker tries to pivot from a massive scandal involving rigging diesel emissions tests in the U.S. Piech had resigned as chairman before the scandal, but with a personal ownership stake thought to total 10%, observers say he didn’t give up real power. “It’s impossible to believe that he would lose his ambition to run this company,” said one auto consultant. Fortune

5 things to know today

GE earnings and Yum appointment — 5 things to know today. Today’s story can be found here.