IBM might have just made weather commodity trading a lot more accessible


weather_vaneYesterday, IBM announced it would be investing $ 3 billion dollars in its Internet of Things group over the next few years. In related news, the company also revealed a strategic partnership with the Weather Company, parent of The Weather Channel, to take weather data and correlated information pulled from connected devices, and create valuable insights for corporations and industries whose bottom line can be affected by weather.

One division of The Weather Company that will directly benefit from the new partnership is WSI, an enterprise weather services, technology, and content creation group. WSI plans to use the wealth of weather information gathered from the combined network of 100,000 weather sensors and the data pulled from mobile devices, connected vehicles, airplanes, and smart buildings, to generate usable business analytics. That information could impact insurance decisions, the agriculture market, the energy and utility industries, as well as the operations of airlines.

In a blog post on IBM’s Big Data and Analytics Hub, product and analytics VP Andy Rice suggests some benefits of the partnership: Helping to predict electricity usage based on air conditioner and heating use, and the impact of weather changes on retail sales.

Shane Belvin, a managing director at Nobel Weather Associates, which deals in the weather options market, explained, “The IBM partnership is really about collecting all the data possible and connecting that with what the weather fluctuations are. There are companies out there that have invested heavily in analytics and algorithms about forecasting, in order to help people exploit the weather.” Belvin referenced, for instance, retailers staging their stores to attract people to buy weather related products ahead of predicted weather events.

The partnership is also likely to affect the weather futures industry.

The weather derivative is a tradable commodity that is often sold over the counter to specific companies looking to hedge against financial losses related to weather events. There a quite a few organizations, like AXIS Capital and eWeatherRisk, that offer agriculture-reliant organizations and energy companies, as well as ski mountains and outdoor amusement parks, an opportunity to mitigate the financial risk of the unpredictable weather through hedging on weather futures. The weather commodity market is quite different than weather-related insurance, which is most often tied to catastrophic events like blizzards, floods, and hurricanes.

With the new partnership between IBM and The Weather Company, businesses will not only have more detailed historical weather data to inform decision making, but may also be able to leverage the information for risk management decisions related to weather commodity hedging.

“I think that IBM is trying to be a warehouse for all this information, have it gathered in one place, and connected with Internet of Things devices, so that companies can start managing weather-related risk in a new way,” said Nobel Weather Associates’ Belvin.

“IBM’s investment in the weather will make it much, much easier for companies to understand how the weather impacts their business,” said Belvin. Adding that IBM will help businesses better quantify the impact of the weather, for instance the impact of when it snows 40 to 50 inches in a year versus 30 to 40 inches, Belvin said the impact of weather on the bottom line will become more clear.

For the weather commodity industry, the result could be more involvement in weather derivatives outside of the traditional industries like energy, utilities, and agriculture. Currently, only 5 percent of the market involvement in weather futures comes from businesses outside that group of three.

As the IBM Internet of Things group gathers more data, and turns it into usable information through its The Weather Company partnership, it will be interesting to see how businesses at the mercy of the weather react. We’ll likely see more products like the NEST connected thermostat, that gather data and try to make life easier for consumers. Also, we’ll probably see companies finding new ways to react to the variability of the weather. Finally, with all this new data in hand, weather derivatives might suddenly get a lot more popular.



Why the Internet’s Most Valuable Commodity Is First-Party Data


Most consumers already know the websites they visit collect their data, so when they get personalized offers and content, they’re not surprised. Consumers also are increasingly aware of the distinction between first-party and third-party data and that some companies collect third-party data and resell profiles of personal information to willing buyers.

Third-party data aggregation is under attack, which presents an opportunity and incentive for digital marketers to favor first-party data to build a more strategic and personalized marketing strategy.

The Power of First-Party Data

The more you know about the way your customers engage with your digital properties, the better you can align what you’re selling with what customers are interested in. Though third-party data can be useful in the marketing process, a skilled and nuanced first-party data strategy is a more reliable and respectful way to deliver offers with a higher likelihood of engagement and conversion.

To clarify the differences between the two, first-party data is generated when an organization collects visitor behavior about customers on its own digital property. Sometimes, this is anonymous data, but more often, an organization knows the visitor’s identity because he or she is either a registered user or has provided identifiable information in a previous visit. Brands then track consumers to serve up relevant information and offers.

Using first-party data means that the data comes from a company learning how its customers interact directly with its brand. This is its real value.

For example, first-party data lets a retailer know whether a customer favors brown shoes over black based on current or past shopping activity, or whether a consumer prefers to shop on a company’s website or via a mobile app. Typically, this approach is enabled through first-party cookies placed by your company and are almost universally accepted by consumers.

Understanding Third-Party Data

Third-party data collectors also use cookies to track consumer behavior. However, these cookies are typically dropped by a third-party ad provider, and they are now frequently rejected based on a consumer’s browser settings. But when those cookies are enabled, those third-party aggregators can track users across multiple sites and stitch data together to form a user profile. That tracking can ultimately be paired with a consumer’s identity and a host of other information, such as names, demographics, interests, and preferences, as well as potentially more sensitive data, such as medical information.

Data aggregators—which have neither relationships with consumers nor their explicit permission—then sell that data.

Third-party data also collects other personally identifiable information culled from entirely unrelated online experiences. For example, third-party data might tell an online news site to show a consumer an ad for women’s jewelry because of a gift he purchased for his wife months earlier. That sort of conflation is not only counterproductive, it can also undermine consumers’ trust in your brand.

Though third-party data has gained traction, it’s not new. Marketers have historically used the buy media approach to find new customers through third-party sourcing of information.

For example, direct marketers may send circulars to certain ZIP codes based on what third parties know about demographic information within that ZIP code. The technique hasn’t changed, but the sophistication and the ability to track consumers across multiple sites while collecting personally identifiable information has. This evolution has prompted the growing backlash from consumers and privacy groups.

Shifting the Focus to First-Party Data Collection

The answer for today’s marketer is first-party data: Marketers should collect and harness their own data based on one-to-one brand experiences instead of relying on third-party sources’ purchased and unrelated customer information.

Marketers ought to cultivate relationships directly with consumers and only augment with third-party data when appropriate. By shifting the focus to first-party data collection, marketers can evolve their processes before the current, largely prevalent one is made obsolete through legislation and consumer backlash. Not only is first-party data richer and better in quality, it allows marketers to enhance the customer experience continually without raising the hackles of privacy advocates and consumers.

If your company is investing the time and money in technology to know customers better, one of the best ways to do that is to build upon how customers are already interacting with your organization and its digital properties rather than based on what a third-party aggregator may put forth.

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