Monday, June 6, 2016

Let the negotiations begin: How met agencies can share revenues generated by private sector companies

By Anthony Mills
We all know that good data – and an improved understanding of the market – makes for good decisions. In order to understand the nuanced intricacies of the weather services market – and potential revenue streams that could be generated through agreements with private-sector companies – we decided to look at what the data told us. This meant taking on a major cross-continental market study to better understand the market for such services, its pitfalls, potentials, challenges and opportunities.

The need for such market data and information was clear. In an earlier blog post, I wrote that “More information…is needed on how meteorological agencies can commercialize part of their operations and on how met agencies can add value to their existing information so that it can be sold.

“Questions also exist regarding the use of potential income streams and on whether these would be enough to help agencies maintain and expand their operations. Can mechanisms enabling the flow of funds from the aviation sector to met agencies form a useful precedent? Could mobile phone companies perhaps pay met agencies for valuable and highly tailored information that could then be distributed to their users?”

This questions were followed up with a simple conclusion. “[We] need to establish how the new services that [the met agencies] will be providing can generate revenue streams for the long-term maintenance of the new as well as the existing met equipment and technology.” 

More than a year has passed since this text above was written, and the good news is that the information required is now available. This is because CIRDA commissioned a market study on how the met agencies can capitalize on private-sector opportunities and find mechanisms to increase revenue streams. The results of this study are detailed in an the UNDP’s new Climate and Weather Services Market Assessment - Revenue Generating Opportunities Through Tailored Weather Information Products

The extensive report, made possible with financing from the Global Environment Facility's Least Developed Countries Fund, is over 100 pages long. For a snapshot, take a look at the summary. In this blog-post I give you the findings of the study in a nutshell, and in a more informal manner than you will find in the technical report.

A True Market Opportunity
The main finding shining out of the market study was that the met agencies have a remarkable opportunity to be part of a growing, dynamic, large and powerful private-sector market based on tailored weather information products.

In recent decades the availability, diversity, sophistication and use of weather information products generated by private-sector companies has skyrocketed. These companies are increasingly using satellite data to generate their products, but they are always on the look-out to refine their products by using local weather data collected from the ground.

The risk facing the met agencies is that these private companies do not depend on the met agency data for their commercial viability; the data from met agencies is just a “nice thing to have.” Business will go on for these companies, with or without the met agencies. In time, as the private companies get used to running their operations without the met agencies, it is likely to be harder to forge partnerships in the future. Consequently, now is the time for met agencies to seize the opportunity to partner with the private companies.

The weather information market in Africa is still fresh and dynamic. There are gaps to be seized. There are profits to be generated through innovative approaches like the new apps developed at the recent Climate Action Hackathon.

At the moment, accurate, consistent data from on-the-ground met agency weather stations do have value for private weather services companies. Such data can increase the quality of the weather information products, enabling them to charge their customers more.

The private companies will consequently be prepared to share in revenue streams with the met agencies, which in turn increases the long-term financing prospects for the met agencies. Indeed, the global weather information companies aWhere and Speedwell Weather both publically stated their commitments to forging partnerships with African met services at the CIRDA Last Mile Workshop, held March 2016 in Livingstone, Zambia. Both companies agreed that shared revenue streams – as is for example already happening in Brazil – were an option on the table if the data provided by the met agencies was consistent and accurate. It was also noted that the value of the data from the met agencies would be greater if the data from several countries could be pooled together.

Making It Work
Another finding emerging from the study was that generating profits from tailored weather information products is not a straight forward exercise. Like any business, there needs to be a steely focus, a gritty determination, a commitment to extreme quality, laser-like attention to detail, strong skills in technology, marketing and business development, large doses of innovation, a fleet-footed flexibility, and last but not least considerable patience.

It takes many years of time, joules of human energy and millions of dollars to transform the initial idea of the weather information product into a profit-generating revenue stream. In short, this is not for the faint-hearted. Only companies with strong human resources, deep pockets and a lively entrepreneurial mind-set will cut the mustard in this arena.

Take WeatherNews for example: they started out in 1986 in Japan, and today have a staff of over 700 scattered across the world. They specialize in providing tailored weather information to assist businesses in planning their operations. If you are a mining business, or a construction business or a shipping business, for example, you need to know when the storm will hit so that your operations can be adjusted accordingly. It is certainly worth your while paying WeatherNews a lot of money if they provide you with weather information on an hourly basis that you can rely on. Large savings can be made for the customers. WeatherNews of course trades on this. Last year it made US$33 million gross profit.

Companies like WeatherNews are always open to improving their products to increase their profits. This is where met agencies have an “in.” If the met agencies were to provide their data for a relatively low cost (or even for free) to such companies, there are potentially large returns to be gained via revenue-sharing with the companies.

Of course, the met agencies will need to negotiate hard for a fair share of the proceeds, and expert advice will almost certainly be required for such discussions. This is because determining what is “fair” requires a detailed understanding of the weather information market.

If you are wanting to buy a house for example, it is very unlikely that the seller will accept your offer if you come in at 20% of the market value. Met agencies need to do their homework to work out what the market value of their data is on the international market as well as national market, and walk into the negotiations well prepared.

Other steps that the met agencies will potentially need to take prior to stepping into the ring with the private companies include: ensuring that the national legislation allows for revenue-sharing contracts between weather companies and the met agency; expanding their ground observation network to provide sufficient coverage of the country to entice the private companies; and importantly ensuring that they can guarantee consistent and accurate data to the companies.

The met agencies can take heart that they are holding a lot of trump cards when walking into the private company board rooms. They have, for example, archived historical data that is of some value. But the value of historical data is negligible compared with future potential data.

The real trump card the met agencies are holding is that they have a lot of infrastructure on the ground that can generate data that will improve the weather information products in the private sector for many years to come. In this regard: the more data from the ground the better.

One low-hanging fruit for the met agencies is to capitalize on the huge investments that cell phone companies have made into infrastructure across their countries. At each cell phone tower there is electrical power, a strong mobile phone signal for transmitting data, and a sturdy barbed wire fence to protect the equipment. These are the ideal sites for – with relatively little investment – expanding the ground observation network of automatic weather stations and greatly increasing the amount of data to provide to private companies.

The mobile phone towers will affect the data slightly; the tower may for example block the rain from entering a rain gauge for example. But the effects have been shown to be minor and easily corrected. Private companies are certainly going to see tremendous value in such data.

So my parting message to African met agencies is: invest on your mobile phone towers and let the negotiations begin!

Dr. Anthony Mills is the CEO of C4 EcoSolutions – a company of 15 climate change consultants that develop innovative, evidence-based solutions for adapting to climate change. C4 operates in more than forty countries across Asia and Africa. The company’s clients include the International Finance Corporation (IFC), UNEP, IFAD, FAO, CarbonPlus Capital and UNDP.  C4’s work includes designing and implementing adaptation projects and investments in both the public and private sectors. Anthony is also Extraordinary Professor in the Department of Soil Science, University of Stellenbosch. 

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