How IBM is Weathering the Subscription Storm and Pivoting to Paid Success

How IBM is Weathering the Subscription Storm and Pivoting to Paid Success
Last updated on August 9, 2021

The subscription economy is booming. More than four in five U.S. consumers* now pay for at least one streaming video service, helping support a broader subscription economy that has more than quintupled in size since 2012.*

In no sector has this held truer than in consumer-facing media. The pandemic—coupled with a rising appetite for privacy—has only accelerated a years-long shift away from the traditional ad-supported model and toward the lucrative world of paid content.*

 

But pivoting an all-encompassing business model and driving results in an increasingly crowded space is also a mammoth task. Marketers need a thorough understanding of their value proposition, access to cutting-edge technology that enables testing and optimization, and—most importantly—an excellent product that delivers a compelling experience to consumers.

It all raises an abundance of questions. On CleverTap Engage, our podcast and video interview series where we shine a light on leading CMOs achieving meaningful and memorable customer engagement, hosts Peggy Anne Salz and John Koetsier recently sat down with someone who has answers. 

Sheri Bachstein — the global head of IBM Watson Advertising and GM of the IBM-owned Weather Company — has overseen a wildly successful pivot from a free app to a paid app. This came as a result of their effort to diversify revenue at the legacy media property. 

Since launching The Weather Company’s app-based, premium subscription offering less than two years ago, Bachstein has led the initiative that’s garnered nearly one million paid subscribers. What’s more, she says it’s experiencing further double-digit growth every quarter.

Over the course of the 30-minute interview, Bachstein shares priceless insights on personalization, leveraging AI to solve marketing challenges, the future of advertising in the privacy age, retaining subscribers, managing churn, and so much more. 

Key Takeaways

Research, Research, Research

Bachstein’s team didn’t just launch a subscription service and second-guess what users might be willing to pay to use it. It conducted extensive research and went to the source with surveys and focus groups. Listening to what users need to understand what they expect from a paid product and empowering users to customize it based on their individual needs allowed The Weather Company to hit significant subscriber numbers in record time.

Since launching a premium subscription offering just 18 months ago, the company counts nearly one million paid subscribers

Leaning Into the Future With AI

Marketers shouldn’t fret over the loss of identifiers such as IDFA or third-party cookies. In reality, identifiers provide marketers with insights related to customers’ past actions and behavior. But even perfect data about the past doesn’t equip marketers to succeed in the future, Bachstein says. AI is predictive, providing marketers the building blocks for a future-oriented strategy that allows them to understand what customers will need tomorrow. In her view, AI is at the core of approaches that will enable marketers and brands to “connect with customers and anticipate what their actions may be, so they can better serve them.”

Retention Requires an Excellent Product, First and Foremost

The Weather Company has achieved a 75% retention rate, largely on the strength of its product. A successful paid product requires delivering something that consumers not only need, but that they can’t get for free somewhere else. 

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Full Podcast Transcript

CleverTap Engage Episode 2 – Sheri Bachstein, the Weather Company and IBM Watson advertising

 

John Koetsier  

If you want to know the answer to a question, there is a very simple solution.

 

Peggy Salz  

Indeed, there is, you ask them, that is what we do here, we ask.

 

John Koetsier  

Shocker, shocker. Today, we have an amazing guest; I am super excited about this. Sheri Bachstein leads the Weather Company for IBM and they have super-smart AI, but that does not mean that they ignore the basics.

 

Peggy Salz  

No, they do not. In fact, they have, I would say, re-engineered them because if you want to know what your customers want, you have to find out and then use this information to shape a subscription model, which I think is super exciting.

 

John Koetsier  

It is super exciting. Sheri shares so much knowledge with us, one super interesting point that she is going to share in a moment is talking about how she sees bundling coming in the new subscription economy.

 

Peggy Salz  

Okay, my pick would have to be super smart; short observation about advertising, you know, we are sweating IDFA. But she reminds us that all of those identifiers tell us about past behavior; why not try to predict behavior, be therefore entirely engaging and actually very important to the customer going forward? It is just a different way of seeing the timeframes and it is certainly a new opportunity to consider.

 

John Koetsier  

That was a great insight as well; without any further ado, this is Sheri Bachstein, general manager of the Weather Company and IBM Watson advertising. So, Sheri, you made a major pivot last year during a pandemic, you were 100% ad-supported and you went to subscriptions? Why?

 

Sheri Bachstein  

We did, well the pandemic definitely accelerated that, but we actually made the decision, probably a year before that, that was going to be our strategy. We were just looking for a way to diversify our revenue because, as you said, we were very dependent on advertising. Not that advertising is going away, it is not, but it is really healthy to have a diversified monetization strategy. I mean, if you think about your own personal life, they always say do not put all your money in one fund, so it is the same strategy on the business side, it just helps to protect our business. We actually see a lot of growth here and we made that decision by talking to our users to see if it is something that they would even be interested in and we found that it is.

 

John Koetsier  

That is super interesting. I have not heard that one before. Before going into subscriptions chat with your users, would you like to see something like that? That is a perfect segue to the second question that we had for you, you made this move to subscriptions, and it was super successful. We are going to get into that in a second but how did you do that? How did you work through that process?

 

Sheri Bachstein  

So, we did a lot of experimentation. We had a hypothesis, we did a lot of research and as you said, John, we talked to our users; they are the cornerstone of a publishing business. So, what were they interested in? What would they be interested in purchasing and subscribing, what features, we felt like we had to give a better, more value exchange than we do on the free platform if we are asking people to actually pay for subscription? So, for us, it was not about gating features, meaning that you block features from users that were used to seeing it; it was actually about strengthening that value exchange. So, we did a lot of testing a lot of talking to users. Some users, of course, say they will never pay for weather and that is okay because we have the free platform. For those that did, really listening to what they said they wanted, and building out a product, first and foremost, that delivered on that. Then from there, a lot of experimenting around pricing, that is really important. What is the right price? We did a lot of research on that. 

A lot of asking users to come up with that right price and in the beginning, we went out with one price, and later we changed it, the more we learned. So, it has been an amazing learning process, but we do a lot of growth hacking. I am sure you are familiar with that, really small experiments to find out what is the right solution? What is that right recipe and that is what the team has been doing and frankly, we are still doing that.

 

John Koetsier  

That is so amazing, Sheri. Peggy and I hear that quite a bit from the smarter marketers, who are just learning at Internet speed, because they are running a ton of experiments with a ton of the different users or segments of the user at any given time, learning fast adapting fast and growing fast. Talk to us about some of those results.

 

Sheri Bachstein  

So, we are really happy with the results. We have our subscription business on our apps only; we are expanding that first and foremost to our web platforms that is actually coming out very soon, actually this month. So, that is the audience path and the growth but with our apps only, we are reaching a very big milestone that frankly has taken other publishers twice the time to reach. So, the adoption with our users has been really strong, and the marketing around that, in order to first let people, know that you have the product and then get their interest up, and then actually getting them then to convert to a subscriber, has been very good. I would say, even with that big milestone, we are still in our infancy. I think there is a lot of room for growth here within the subscription business.

 

Peggy Salz  

It is also really interesting how price and customizing price becomes a really big part of the model as well. I mean, your results say that your growth speaks for it. I would like to understand in that growth can you give me an idea of the scale? How many devices are you reaching? How many requests are you getting?

 

Sheri Bachstein  

From a weather business overall, our weather data on our O and O properties. When I speak about that, it is the Weather Channel and we also have Weather Underground; we reach about 400 million users every single month, that is just on our property. But we do have strategic partnerships with some of the largest OEMs and tech companies in the world, so really, our weather data is on over 2.5 billion devices around the globe. So that is our reach and our footprint, so as it relates to subscriptions, it is really part of the O and O, so that 400 million, and we started domestically, as well, so that narrows it down a little bit. We just think the opportunity is really big because really only a small percentage of our users today are subscribers, but it has been very beneficial from a business perspective.

 

John Koetsier  

It always so interests me as people move from an ad-supported model to a subscription model because I have done multiple surveys and research about what people are willing to pay and whether they are willing to pay. One that I did just recently was on Facebook and Google. Would you pay for Facebook and Google, for instance, and we had actually about 20% of people who would be willing to pay something. I did the math and Facebook is making something on the order of $160 per user per year in North America. People would only be willing to pay a fraction of that. 

If every user paid or if some fraction of your users paid, would you more than replace your ad revenue?

 

Sheri Bachstein  

We would, I mean, the walled gardens definitely have an advantage when it comes to advertising, but for other publishers, there is that tipping point of where a subscriber becomes more valuable than an ad-supported user; you have to look at that threshold. But the other spectrum of that, as I said John, advertising is not going away; even with the challenges of privacy and targeting, it is not going away. It is evolving, and it needs to evolve, frankly. But with your subscriber base, it just really comes down to giving users a choice. We know that some of our users prefer the subscription experience and then other users prefer the free experience. So really giving the consumer the choice has been really beneficial to us.

 

Peggy Salz  

So, we are talking about whether you are the Weather Company, you are also part of IBM, it seems unusual, but it really works well together. If we look at what is going on here under the hood, we are talking about AI, we are talking about contextual advertising, linking that with content. What is key to what you are able to do?

 

Sheri Bachstein  

So being part of IBM, a couple of reasons why the acquisition happened. First, weather is a very valuable data set, and every organization and company should, frankly, have a weather strategy because there is really not a business that weather does not impact at some part of their supply chain. So that data was very valuable, so bringing that to IBM has been very beneficial. In turn, being able to use a very sophisticated AI solution in Watson has been really beneficial for our business. We have always used AI in our weather forecasting but now we were able to put out a brand-new weather model just last year that uses IBM supercomputer. 

We can do really interesting graphics, really more detailed graphics, similar to what you would see like in a video game and be able to provide a forecast to parts of the world that never had a forecast before, because they do not have government support, or they do not have sophisticated satellites. It has enabled us to really expand our mission in providing weather data across the globe, so there is that aspect of the AI. But now, there is this aspect of how else we drive our business and give consumers information that helps them make their decisions. So, we have AI supporting our risk of flu, that came out last year as well. We can tell people out 15 days if your area is a risk area for flu, so really beneficial. 

We are looking actually for that for COVID. That is something that we hope to bring out next quarter because we know COVID, although we are all getting vaccinated, which is great, can reoccur. So, what is that risk in your area and be more predictive about that, we think that will be really helpful. Then on the advertising side of our business, we are using AI to really change the foundation technology within advertising because we know cookies are going away, mobile identifiers are going away. So really, this business is at such an amazing inflection point that a new technology like AI can solve problems for marketers in helping to target those consumers but do it in a way that is not using cookies, doing it in a way that’s more forward-thinking, which will be great for the industry as a whole.

 

Peggy Salz  

What I really love is how you are using AI for the product as well, because product is the new marketing. I am hearing so much, and I am sure you are John as well. The product really has to be right, now more than ever, probably because cookies are going away. You have to be compelling in how you approach me, not just in the data-driven advertising. Now, of course, you use AI for product, and you are talking about how you are using it in advertising and marketing but are CMO’s, others leveraging AI enough right now, Sheri? 

 

Sheri Bachstein  

Well, I wish they were leveraging it more; that would be great. AI is interesting technology because for some people it is a kind of buzzword they kind of understand what it is, they are not quite sure. So, we have seen a very, very slow adoption within advertising. I think that will speed up with all the changes that are happening; it will be a forcing function. I think we have to do a better job at explaining the benefits of AI, and how it can actually help the CMO, how it can help their organization. 

We certainly want to do that and are doing that. If you look at AI, you have seen it transform other industries, finance, insurance, health, certainly health care, it can do the same for advertising, but there is going to be that education that is going to go with it. Then you have to prove it; you cannot just say, hey, we are using AI, you should use it too. It is like someone that creates maybe a weight loss drink, and no one in the company is actually using it but they are saying it gives you the results, right. It is really, we are actually using our own AI solutions on our publishing platform to prove that it actually works on the publishing side of our business, and it can get results. So, I think that is going to be really important. It is the education; how can this solve marketer problems and then actually living up to that by seeing those results?

 

John Koetsier  

What have you learned about engagement, user engagement in this process of going from ads to subscribers? Are you changing language a little bit? Is it coming from users to customers and what makes a user a customer?

 

Sheri Bachstein  

So that is a great question. I feel all of our users, our customers, they just choose to underwrite our business a different way. 

So, you have the user that does not want to pay subscription fees, so they underwrite that by seeing advertisements. If they can see targeted advertisements, it is probably going to be a better experience and more appealing, but that is the choice of the consumer. Then you have the consumers that want that subscription experience; they prefer to pay for a subscription service versus maybe seeing advertisements. So, we really find that there is both sides from a consumer perspective, which we think is really great because it again comes down to the consumer giving them that choice; they will respond, especially if you continue to drive that value exchange. When we looked at the subscription business, we really have three tips on how we feel we have been successful. 

The first thing is talking to the consumer and reducing their perceived clutter in our experience. So, John, what might be clutter for you might be different from Peggy, what you want. There are those users that just want to get the weather data and get out. They open it up in the morning first thing before they get out of bed; what does my day look like? I just want that; I do not want any other stuff in my way. I just want the temperature and is it going to rain? So, we decluttered the experience for them. That was really the first thing. The second thing is from a subscription business if you can humanize the experience, so can you give them more explanation to what they are seeing? Can you bring in a meteorologist? Can you help them make context of that data? Just really important for the user. Then the other thing is, like I said, strengthening the value exchange. So, we are giving them more features that are more in-depth, better radar experience; not everybody likes maps, correct? For those that like maps, and they really want to dig in, giving them even more data, and those things have really resonated. So, it is again learning about your user and they are not the same, correct? One size does not really fit all; you know what I mean, Peggy, you know that is correct? As with women, one size never fits all, so it is the same thing here.

 

Peggy Salz  

I have to then bring up the next question because it is true; one size never fits all. But we are always changing, perhaps women in particular. So, I have to ask you, Sheri, you are talking about asking the user, following the user, accommodating the user, customizing to the user, to the customer. I would be interested in understanding how you adapt that because you must be seeing some signals or some behavioral data or something is telling you that for example, John does not like maps now but then he learns to love them, and you have to give them to him, and you have to see that.

 

Sheri Bachstein  

That is great and that is where your first-party data is really important. Users that are engaging maps, so this is how we have promoted our subscriptions, so for users that go into the map, we share with them, we have a deeper map experience if they become a subscriber. So, we are using that very targeted promotion within our own experience based on someone’s behavior. So, you are right; a map user today might not be a map user tomorrow. A great example of this, someone on my own team, who is product, said I am not going to subscribe to this premium service until I have to. They are on my own team. Okay, so freedom of choice, correct? That is great. A big storm came; he became a subscriber because he wanted that detailed information that that map had; he wanted to really understand the movement of the storm in a better way. He then became a subscriber. 

I hooked him; it took me six months, but we finally hooked him. Yes, as we continue to build out features and we will as there is no shortage of ideas. We think it will be exciting and as you said, Peggy, some users may just totally want an ad-free experience and that’s okay, but other users might say, no, I am actually looking for a more detailed map experience, that is what is most important to me. It is a variety, and it is a different recipe for different users.

 

John Koetsier  

That is really, really interesting, everybody wants something a little different and wants it in a different way and you are managing that complexity within the platform. Talk to me a little bit about managing retention and churn with your different customer types, your ad-supported customers versus your subscribers? and are there some lessons for other brands in that?

 

Sheri Bachstein  

So, when you look at subscriptions, you are right; there is two aspects of it. There is the acquisition part; that is really where you use the strength of your marketing team, your CMO office, to help you with that because it is just like advertising, correct? You are just doing it for yourself, then there is the retention side, and that is really a product focus. Is the product strong enough? Are we creating enough value that the consumer wants to keep paying? Sometimes we are, sometimes we are not and then, of course, there are life instances that happen, where people are just cutting back expenses, and so forth, things like that happen. Our goal is to really always increase the value that we are asking someone to pay for. We think that is really important. Our retention, fortunately, has been pretty high. We are about 75% retention, which is great. We offer a monthly subscription, and we offer annual, and so it is pretty high. But we also offer a very unique product as well with weather. 

It is something that you do need, but certainly, you can get it for free. We are looking at that, looking at customers that might have the potential to churn. How do you reengage them, discount codes? That is something that the technology has just recently changed within the app store that allows you to give a lot more discount codes. How do you build a strategic plan around that, and that can be very helpful in a way of getting users that have churned or about to churn to say, okay, you did not like paying that price? Let us give you a discount because we have some new things that we want you to check out. So, I think that is going to be a very powerful tool and with the app store’s changing the number of discounts, everybody should be really looking at that and using that strategically as a retention driver.

 

John Koetsier  

Peggy, isn’t it amazing how sophisticated the app business is getting? I mean, it is becoming like a real business in the real world with all kinds of real-world stuff.

 

Peggy Salz  

Features, products, value proposition, I remember, it was just gaming the system, but I didn’t really say that, but it was indeed. It is not the only thing changing; we are also going to see a lot of change because we have an increased focus on privacy; we have IDFA. How are you still going to do ads in this changing environment?

 

Sheri Bachstein  

Well, that is a loaded question, Peggy. I think everybody is trying to work through that; I definitely think there are some great short-term solutions out in the marketplace with universal IDs, with some other technologies, contextual, I think will be a really big thing. For publishers that have first-party data, they will be able to really start leveraging that data probably in a bigger way than they have before. So that will be important, but we also think that AI technology and ad tech solutions rooted in AI will be a foundational technology to help us move into the next era of advertising. I say that because AI, a little bit different than the cookie; we will give that in an example. Cookie tells publishers marketers, what has happened in the past, so if I look at my business in weather, if I only told people what happened in the past, might be interesting, but it is not going to be very helpful. It was not going to help the people last night in the southeast that got severe weather and tornadoes; it was not going to help them because it is not predictive. 

 

AI takes that to the next level; it can take different signals and then actually can predict out the behavior for marketers and so it is real forward-thinking in that way and really more of advanced technology. So, we actually think that this can be foundational for the industry and there are components of it that can be more privacy forward. AI can use all kinds of signals, but it is not dependent on a cookie or traditional mobile ID, which we think is really important. So, it is great that, as an ad ecosystem, we are all working together to find these solutions. I think we need to keep doing that and we also need to protect the open web, we think that is really important.

 

John Koetsier  

Sheri that is maybe the best explanation I have heard, and I have heard a lot of explanations about how advertisers use AI and how product people in the mobile space use AI. It is probably the best explanation I have ever heard around; AI can tell you what somebody might want to do next. Word versus the third-party cookie, or the IEFA, or the GA ID. They tell you what happened in the past. That is bits of data; some of them are staying, some of them are going but knowing what people want next is really critical. Very interesting, thank you for that.

 

Sheri Bachstein  

Yes, that is great, so I am curious; you guys have been in the business a long time. What are your thoughts around subscriptions? Are you subscribers yourselves?

 

Peggy Salz  

I am for what I value because I just want to know that it is always going to be updated. It is always going to be as good as I want and the fact that I can always get out when I want, which I do not usually because it is just the fact that you are free to choose, I can always go back to the ad-supported version.

 

John Koetsier  

I did a little survey of myself, sample size of one, just a couple of weeks ago of how many subscriptions I have, and I think it is up to about 15 or 16 right now. So yes, I am deep in there and sometimes I worry about that because is my bank account, a rusty bucket with a hole in the bottom that just dribbles out, but on the other hand, as Peggy says, if you are not getting value from it, you drop it, there you go. I think it is absolutely critical. We are changing from an acquisition focused mobile growth world to a retention to an engagement-focused mobile growth world where you are going to get customers, in some ways, similar to traditional marketing, where you have got incremental models where you have got some probabilistic data, you have got some deterministic data, you are going to get that customer and you are going to do traditional marketing and new types of growth, marketing. 

But what are you going to do when you have that customer? How are you going to treat them? How are you going to customize the environment to the how are you going to customize a service to them? How are you going to engage that customer and retain that customer and drive value in a way that the customer wants to give it and as you said, some people want to pay and have a better experience a richer experience, an ad-free experience. Some people want, give me the basics; I will watch a few ads and there we go. Having the mix, I think, is critical, but I think it is really important that you do not just have users, you have customers and as you said, some of them pay with the attention, some of them pay with dollars, really, really interesting.

 

Sheri Bachstein  

And I think with the retention model, the consumer wins because it puts publishers on notice, you have got to have a quality product, you have to deliver value for your customer, or they are not going to stick around, there is too much competition and frankly, that’s why competition is so good. So, I believe in this model, the consumer really wins because they get a better product, and they get their needs met. I think it is a great business to be in and it is exciting to create new features, exciting features, that consumers and customers really want.

 

Peggy Salz  

We are talking about the value exchange, and I know Sheri that you are very big on contextual advertising and is there a value? And what is that value? And being predictive because you made that point? Use advertising, I am looking at the past, using AI, I am looking in the future, what is therefore the value of that predictive future-oriented approach?

 

Sheri Bachstein  

So really, in our weather business, it is all about giving people the information they need to make decisions, some of those decisions you want to make today, some of those decisions you are making for your future. Like where am I going to go on vacation? What do I need to pack for my vacation a week from now? So, it is the same thing for advertisers, it is really about how do you connect those brands and those marketers with those consumers and have them anticipate what their actions may be, so they can better serve them, and they can better wisely use their dollars. They can have propensity, if a customer is going to be interested in their products, so I think there is a real value, then you can have a real value from a supply chain perspective because you can use the weather data, it can be predicted about 15 days. 

 

So, if you look at the cold and flu season, we have a partner that uses our data to look 15 days out to make sure of their supply chain, and products are in their store and the shelves are stocked, which is really important. A couple of years ago, before we had a predictive flu product, the flu season was really bad, and nobody really predicted how bad it was going to be and shelves in the drugstores were bare. Because companies that make cold products could not get them into the store fast enough, so that can really help a company from a supply chain perspective, which helps their entire business, not just on the advertising side, but it can be really beneficial to be able to use that kind of technology across the entire ecosystem for a brand.

 

John Koetsier  

I am really glad you asked that question Peggy, because it was a great question and a great answer and this is getting so meta because we are talking to a company about predictive AI, whose business is predicting the future and now we are adding another level of meta here because I am going to ask you and I think our final question, what does the future hold for you for the Weather Company? What are the next steps on this journey of subscriptions of engagement?

 

Sheri Bachstein  

So, it really is the mission and the root of the Weather Company and that is not going to change, is to help give people the best forecasting possible, the most accurate forecasting. It is going to be really important because our climate is changing, we are seeing more severe weather, some unpredictable. We can forecast it, but you are seeing really interesting anomalies in the wintertime versus what we see during hurricane season. 

Last season was a record hurricane season and so we are starting to see severity of weather change. So, it is really our responsibility to ensure people have that information, so they stay safe, then they can make decisions for their everyday lives as well, we will continue to do that in the subscription way as well, but we are going to go even further, we are going to be able to offer people more in-depth information around weather. Some people really just geek out on the weather data, and they want more information, so we are going to give that to them. We will do it in a subscription way because it can be a niche for some users. 

I think the future for our business and really the industry as a whole for subscriptions is really bright. If I look at what happened with cable a long time ago, a lot of individual cable subscriptions, correct. So, John, you have your 15 and then you start seeing bundling happen. I do think that will be part of the app subscription as well. I think we will start seeing possibly some bundling because I do think there is that tipping point, too, with how many subscriptions do you want? But if you start bundling it and add more value, I do think that is in our future.

 

John Koetsier  

Sheri, that is a new thought. I have not heard anybody say that we hear a lot of stuff. Imagine that. Here is your social bundle, here is your search bundle, your productivity bundle. Wow. Sheri, this has been so much fun. Thank you for taking some time out of your schedule to chat with us.

 

Sheri Bachstein  

So happy. Great to see both of you. Take care. 

 

Peggy Salz  

Thank you. 

 

John Koetsier  

Thank you.

 

 

 

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