NEW YORK (CNNMoney) – IBM is betting heavily on blockchain technology by revolutionizing everything from shipping to banking.
Industry observers say this is a risky move, given the relative novelty of the technology and the clamor surrounding it, but they say IBM is well positioned to make it pay off.
For those who do not know, the blockchain is essentially a shared digital ledger. Once entered, transactions can not be changed, creating an immutable record. The technology is more associated with cryptocurrency, but several companies, including Microsoft, JPMorgan Chase and American Express, are exploring its use in other areas.
IBM has 1,500 employees working on more than 500 blockchain projects in areas such as shipping, banks, health and food security. He also has close collaborations with the likes of Columbia University to develop even more uses for technology.
It is a bold but not extravagant move for a company that is often among the first to embrace the new technology, said Josh Olson, an analyst with Edward Jones. Although IBM is one of the first leaders in space, it began implementing commercial applications, such as its work with Walmart to improve food tracking two years ago – said it does not guarantee long-term success.
"Historically we have seen IBM invest in early technology with some initial promises, but then have had difficulty marketing good technologies or large-scale innovations," Olson said.
Through his research, IBM has identified three areas where blockchain could be valuable: financial services, shipping and health care. So far, he is placing the utmost emphasis on the financial sector.
While IBM was open to using the blockchain more widely, he realized that technology was not a panacea. Blockchain is best used to transform paper tracking systems into digital ones, increase efficiency and share data across sectors.
LedgerConnect, for example, brings together financial technology companies and banks to share blockchain technology and improve their daily back-end operations.
TradeLens aims to improve shipping by minimizing documentation and documentation errors that often accompany it. More than 150 million transactions have already been registered on its blockchain. To date, over 4,000 shipping containers have been tracked, with the intention of adding more.
IBM's insurance data link allows insurance companies to upload data directly to a blockchain platform to demonstrate that they comply with government regulations, another way technology can eliminate bureaucratic documents by increasing efficiency and safety.
Humanity.co allows people to use blockchain technology to track how their personal information is accessed.
Research is one thing; the challenge lies in finding commercial applications. Olson cites IBM's pioneering work in artificial intelligence and the creation of the Watson supercomputer as an example of this. The technology behind Watson proved to be expensive and difficult to commercially adopt, which allowed competitors to capture and then switch, IBM.
The company claims to have learned from this mistake.
"Watson is very complex and difficult," said Bridget van Kralingen, SVP of IBM's industry platform group. "With blockchain we made everything easier, we learned a great lesson in the implementation of new technologies: ease of use has become a very important part of adoption."
So he listened to the market and worked with clients to determine what technology needs, said Marie Wieck, general manager of IBM Blockchain.
"We did not start with a big bang," Wieck said. "We found [blockchain] a real applicability but not only as an extension of our existing products, we had to create something new, so we started experimenting and doing some customer pilots, and we saw that there was enough interest in to move on."  Responding to consumer demand and needs is important, but it is also crucial to keep looking forward, according to Catherine Tucker, a professor at MIT's Sloan School of Management.
"I think the biggest risk for IBM is the lack of innovation," said Tucker. "In their position it is very easy to be trapped by the needs of customers who are currently serving rather than future needs."
Olson sees two challenges to success. First, it must find customers who understand the technology and can benefit from it. And it must create a standardized system capable of scaling the various industries. He cited IBM's work with its HyperLedger, a forum where companies from different industries can work together to develop blockchain technologies, as a step in the right direction.
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