The Weather Company: Affecting Everyone’s Lives and Making No Money

Weather affects every aspect of our lives and every sector of our economy. Since weather is uncertain, we turn to forecasters for advice. Sometimes we just want to know what to wear, but other times billions of dollars, or thousands of lives are at stake. About $3 trillion dollars in the US economy alone is made up of weather-sensitive industries. From improving farm yields with per-field rain data on national scale, to providing insurance companies with accurate hail data, from helping pilots to avoid fog, to optimising rescue efforts during flood, there’s a world of opportunities for weather-based decisions.

I was amazed to look at the market potential of the weather forecast industry and then at the relatively low revenues of TWC ($270M in 2014). Honestly, I expected more from the biggest weather company in the world.

TWC Business Model:

TWC has several divisions. I will talk about the two prominent divisions.

1. The first division is the media division (“MD”), that was the original core business of TWC. MD sells forecasts for media and internet companies, that display weather information to their viewers and generate more traffic. MD also operate TV Cable Channel.
2. In order to get better data and not be dependent on government agencies, TWC acquired Weather Services International (“WSI”). WSI is a data and software division that generates weather data and makes analytics on that data. WSI sells products that provide tailored solutions to a variety of industries (government, insurance, finance, aviation, etc.).

TWC Operating Model:

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It took TWC many years to understand the value of the data in its hand. Once Identified, the company struggled to implement its business model. Instead of creating state of the art products for almost every industry existed, TWC kept focusing on giving forecasts to media entities. TWC generate only $270M in revenues. That is shocking giving the fact that The Weather Channel is received in approximately 90 million American households and provides data to notification screens on every IPhone (there are more than 1 Trillion IPhones worldwide).

How so?

1. TWC focuses too much on the media segment, but in today’s internet advertising world it is impossible to generate only $175.5M in revenues from media services (270M*65%). The world consumes weather information every second, and as the biggest provider, TWC catches too little of that. TWC has long term contracts with media and internet companies. Those are fixed priced agreements that don’t compensate TWC appropriately
2. TWC fails to capture the value of the applications that they recognized in their business model. Only 35% of their revenues are from special products, that should be developed by WSI. I believe that WSI’s products are either not good enough or lack marketing and sales that generate more penetration. From my experience using those products as a pilot, the products are not good enough.

In general, the models are aligned but the operating model isn’t effective enough. The fact that there’s a separation between the media and WSI divisions reflects that TWC recognizes the need to generate different value in each sector. Still, the majority of operations comes from MD. However, they get only fraction of the market potential. At the same time, WSI should create better products to capture the majority of the business model value, but does a bad job generating only 35% of the revenues. To improve their operating model, TWC should:

1. Create weather API that will generate revenue per click, rather than fixed price agreements with media and internet companies. That way, TWC will be able to capture more from the value of their original business model – to provide weather data for the mass.
2. Through WSI, focus on the Data Science and products R&D in order to capture the real value that lays behind weather data. As I said, WSI business model identified the potential of weather applications, but fails to shift the focus of the company and the majority of the resources towards WSI from the media segment.

On a higher level, only by shifting the entire business into data driven business rather than media driven business, the real value of the weather data can be exploited. There’s a negotiation to sell WSI to IBM, and I think that it would be best for both sides. Better engineers, better analytics and more creativity will improve WSI products significantly.

Sources:

http://www.Wikipedia.com

http://www.IBISworld.com

http://www.CNN.com

http://www.Wsi.com

http://www.Theweathercompany.com