Using Data to Monetize Mother Nature

If you’re anything like me, one of the first things you do when you wake up in the morning is check the weather.  In my case, I fumble around for my iPhone, open up my Weather Channel app, and figure out what I should wear.  With over 86 million monthly visitors to its web and mobile platforms, it’s safe to say that The Weather Company (Weather) has quite the following. But can the most popular weather information provider in the U.S. use its internal and customer data to create a competitive advantage? IBM’s purchase of Weather’s digital assets and data certainly suggests so.

Let’s start with taking a look at how Weather uses data to create value. First, from its wide user base, Weather captures over 86 million monthly visits, and is therefore able to collect location data from a massive amount of users – far more than any of its closest competitors.  Then, in combining its user data from location, cookies, and Weather’s own weather pattern information, the company is able to create a compelling value proposition for retailers, insurance companies, and airlines, to only name a few.  Let’s use the example of retailers, and specifically Nordstrom.

Nordstrom has a large inventory of winter coats and wants to both effectively advertise that product to customers who need a winter coat (to most effectively use its advertising dollars) and ensure that if a customer does want a coat that Nordstrom carries, he/she purchases it from Nordstrom instead of another retailer.  Therefore, Nordstrom would love to reach people who live in cold areas and have shown an interest in winter coats.  Enter Weather.  By using its data to match online habits of its user base, along with weather patterns, Weather is able to provide Nordstrom a marketing opportunity for the precise target customer the retailer is looking for: A customer who lives in an area that is about to get cold and who needs a new coat.  Furthermore, should weather patterns shift, Weather’s data enables retailers to make real-time marketing decisions unlike ever before.

When we think about value capture, IBM describes the value up for grabs best in saying “weather is perhaps the single largest external swing factor in business performance – responsible for an annual economic impact of nearly half a trillion dollars in the U.S. alone.”  So, even ignoring the incremental value that retailers could capture by better targeting advertisements and products to weather patterns, the value that players could stand to capture from merely sales lost due to weather swings is significant.

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But, it’s not just companies like Nordstrom that capture value from the model.  The Weather Channel itself also captures value in ad revenue, as its single largest source of revenue comes from digital advertisements.  Also, in a similar value creation/value capture model, air logistics providers will be better able to understand weather patterns and avoid costly delays.

The relatively new and growing digital advertising revenue has given Weather the much needed capital to reinvest in the business to further enhance the product, attract new users, and improve its internal data collection.  And now (post-acquisition), Weather has become a key part of IBM’s business model, as IBM partners with top companies in the world to drive software and data-driven business solutions.  One of the major challenges Weather faces going forward is most prominently the risk of being incorrect.  Despite having a plethora of data, Weather can’t control the weather.  Should the company get a prediction or assertion wrong, major marketing dollars (e.g., in retail), supply chain logistics (e.g., in retail and global logistics providers), and core business operations (e.g., in insurance) are at stake, and a misstep could cause Weather to lose a customer, or worse, credibility.

Sources: Programmableweb.com, techcrunch.com, datacreators.wordpress.com