The Digital Skeptic: Government Has Bad Forecast for Weather Companies

NEW YORK ( MainStreet) -- Hurricane Isaac may have taken a steep toll on New Orleans, but the big blow revealed a far deeper weakness in another dubious levee in the digital dike -- the lucrative business of weather information.

Believe it or not, the ancient ebb and flow of the wind, clouds and water has turned out to be a killer app in the bleeding-edge mobile Internet. Several multiplatform commercial digital weather operations, such as The Weather Channel and Earth Networks' WeatherBug service, compete with a larger hive of mobile weather apps to offer the inside scoop on what is happening inside the atmosphere.

No less than Mary Meeker -- the one-time superstar Morgan Stanley ( MS) analyst who is now a partner over at Menlo Park, Calif.-based investment shop Kleiner Perkins Caufield & Byers -- says the weather market has become a critical cog in the mobile device market.

In her latest Internet Trends report, right there on slide 19, she pegs the leading category in so-called mobile eCPMs -- that's roughly what an advertiser is willing to pay to advertise on something like a smartphone -- is not in sports, or navigation or even business news.

But up in the clouds.

Weather is mobile money
According to Meeker, weather fetches a category-crushing $1.24 eCPM. That's 6% or so bigger than the next category, education. And a stunning 80% or so more than the median value of the top-10 listed categories -- mostly utterly mundane stuff such as health and fitness, education and utilities. Supposed mobile world killers including sports, media, and news -- the stuff investors hoped would pay off in the no-money Web -- don't even make Meeker's top 10.

Weather's critical position is not lost to investors. This summer, The Weather Channel companies, which counts some serious Wall Street backers including The Blackstone Group and Bain Capital, bought out Ann Arbor, Mich.-based provider Weather Underground -- in part to protect both companies from today's twister of online and multichannel weather operations. I gave up counting the number of weather apps after WeatherBug, GO Weather and the weather features in LevelUp Studio's  Beautiful Widgets suite of offerings.

But the scary thing is, that massive threat is just part of the risk established weather content companies face in this impossible-to-rationalize digital economy.

Just as the Internal Revenue Service's website has made much of private tax and accounting products obsolete, no less than the uber-geeky, government-owned National Weather Service is quietly remaking itself as a digital content powerhouse private investors must fear.

For all of The Weather Channel's star power or the crowdsourced data from Weather Underground or custom computer models from an operation such as Earth Networks, the 8,000-pound weather content gorilla is the computer models, analysts and atmospheric data managed by the National Weather Service.

The power of what this service offers directly to customers is staggering.

Want the real deal on Isaac? Forget Weather.com, WeatherBug or any of those outfits. Go right to the National Hurricane Center, part of the National Weather Service's online efforts. And there you will find an excellent Web service with all you'd need to know about disasters such as Isaac.

What's sobering to investors is that the National Weather Service is just getting started as a digital content provider. The agency is in the middle of a ground-up rebuild as part of a larger government-backed effort called Weather-Ready Nation. With the goal of making our slow-to-move country more responsive to natural disasters such as Hurricane Katrina and the devastating 2011 tornadoes in Joplin, Mo.

Weather-Ready Nation will feature serious new radar products, advanced imaging technologies, easier-to-use online resources and -- in a direct threat to private mobile app makers -- a significant move into improved mobile assets, including better emergency alerts.

"The work of the entire weather and emergency management community," says the agency website, "is driven by a desire to make sure the tragic impacts of the tornadoes in 2011 are never repeated."

Go try Weather.gov. You'll see you'd be a fool to rely on any other provider for the life-and-death information you'll need when the next Isaac or Katrina shows up.

Private companies simply cannot compete.

No manna from digital heaven
So here investors are -- yet again -- looking down the barrel of more grim digital age big-think. The information that drives the modern digital weather business is the same as the information driving the modern music, publishing and legal businesses: It's a commodity. Competition is brutal. And wholesale content creators, which, in this case, is the government, can reach consumers directly.

That adds up to a smaller sandbox for investor-backed weather companies to play in, and one less lucrative niche to pay for our crumbling digital infrastructure.

Weather, once one of hidden flowering cherry trees of the content forest, is now just flying debris in the digital hurricane.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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