IoT and Smart Cities — the state of play globally
Smart cities are reaching a critical mass, as they move out of the hype phase and start to proliferate and move forward.
There have been dozens of smart city projects announced globally in the last few years. “Early adopters” are already moving ahead with implementing their smart city plans. The vision that has underpinned some of these projects has been nothing short of breathtaking.
At a time where smart city projects are gaining traction globally and the early adopters begin to grapple with the complexities and challenges they need to overcome to successfully deliver against their smart city visions, we thought it timely to make some high-level observations about the state of play in the smart city space.
Our perspectives have been shaped by our involvement in a number of smart city projects and the extensive discussions we have had with policy makers, telcos, technology companies and other stakeholders over the last few years.
Here are our top ten observations:
1. Policy makers are getting more serious about smart city initiatives
This might sound obvious, but it wasn’t always so. The potential benefits that smart city projects can bring to a city, such as increased economic opportunity, less congestion, less pollution and higher levels of liveability, are now better understood by policy makers.
While the investment case for smart city initiatives can still be challenging (see below), this increased understanding means that policymakers feel more confident about selling such initiatives to residents and other stakeholders.
2. Smart city investment cases are different
The public investment case for smart cities is significantly more complex than other industry verticals that are deploying IoT technology (e.g. industrial IoT). This flows from budget constraints on public spending, the difficulties in achieving political consensus on spending priorities and fact that many of the benefits associated with smart cities take the form of externalities (and therefore, can be difficult to measure). The result can be more reticent decision making, less ambition in the scoping of projects and ironically, greater risk of project failure if the outcome is isolated, single use solutions.
These challenges need to be addressed through a combination of approaches. This includes:
- setting a clear vision for each city upfront
- robust modelling of externalities to look at investments holistically
- the use of commercial models that share costs, risks and upside with the private sector
- the use of template solutions and solution sharing between cities.
We are already seeing smart city leaders looking to transfer their emerging expertise to smaller cities, including through the “white-labelling” of their own smart city initiatives. This is already happening in South-East Asia and the Middle East, creating benefits for larger and smaller cities alike.
We also see greater scope for smaller cities to “club” together to improve the economics of smart city investments.
3. Smart city leaders have common approaches
Every city is different. Each smart city initiative needs to respond to that city’s own challenges. Yet leaders in this space (and those cities that are primed for future success) have a few things in common:
- high levels of political investment: It is no accident that smart cities like Amsterdam, Barcelona, Dubai and Singapore are frequently ranked as amongst the most successful smart cities. A common theme in these jurisdictions is the reorganisation of the political narrative and government priorities to bring the smart city agenda into the fore. This recent interview by KPMG with Martin Haese, Lord Mayor of Adelaide, provides a great example of political leadership at the highest levels driving the smart city agenda. Becoming a smart city needs to become part of the DNA of the city. For large scale projects or those that cut across different government bodies, we see strong advantages in setting up a specialist government body to drive and deliver the smart city agenda.
- they focus on people, not technology: while smart cities have a strong technological dimension, smart city leaders design their cities with citizens and residents as the focal point. Top down approaches, which were prevalent in some early smart city projects, have made way for models that seek to identify, measure and solve the specific pain points of residents. This includes the use of direct engagement models with residents and persona mapping to identify how different groups within the city live, work and play.
- an integrated strategy for the city: cities that are developing smart city solutions without a broader, integrated strategy are doomed to fail. We have previously written about the need for policy makers to think big when it comes to smart cities. If you want to see how serious a government or city is about establishing itself as a smart city, just pick up a copy of its master planning document or plan for urban development. The best ones have an integrated strategy that not only identifies the priorities and outcomes that policymakers wish to achieve for the city, but also the key enablers that need to be put in place for that vision to be realised.
- they get the key enablers in place first: Singapore is a case in point. It is investing in a range of enablers to support its vision, including a heterogeneous network (HetNet) to enable seamless roaming between wireless networks and fixed technologies, a Smart Nation Sensor Platform, R&D initiatives and a ‘living lab’ to allow companies and researchers to develop, prototype and pilot technological solutions (e.g. autonomous vehicles) in designated spaces. The City of Adelaide also provides great example of a smaller city focusing on getting the right enablers in place. It has recently announced Ten Gigabit Adelaide, a new high-speed data network to transform the city, providing huge benefits to the local economy and businesses. Critically, it will provide the fundamental infrastructure to deliver a range of smart city projects, including intelligent traffic flow, autonomous vehicles, smart lighting, way finding and CCTV security.
- they focus on building smart cities that can scale and evolve over time: Dubai’s smart city platform, which has been developed as part of a public private partnership between Smart Dubai and local telecoms operator, du, involves building a single, secure smart city platform for the entire city. Over time, the platform (called Dubai Pulse) will operate as the backbone for a range of sectors and services. Cities that focus on point solutions (e.g. smart parking or city WiFi in isolation) will struggle to get a decent RoI on their smart city investments, missing out on the transformational impact of IoT due to data and technology silos that can’t scale or inter-operate.
4. PPPs are now the dominant model for larger smart city projects
While there are a range of models being used globally, public-private partnership (PPPs) models are emerging as the dominant model.
Global engineering firm, Black & Veatch, recently noted that 60.5% of responses to its 2018 Strategic Directions: Smart Cities & Utilities Report considered that PPPs were the most effective financing tool for smart city initiatives. We agree. PPPs allow government sponsors to share costs, investment risks and upside with private sector specialists.
Telcos, data companies and technology vendors are usually the most logical private sector partners. Some private partners are now promoting template solutions that re-purpose existing smart investments, including through the use of open platforms, such as FIWARE, which has now been used in several cities such as Valencia, Spain.
The use of PPP contracting models does introduce additional complexity relative to more traditional procurement approaches, which can raise challenges for public sector bodies, such as councils, with limited expertise in this area.
5. Revenue sharing models are proliferating
Telcos, technology vendors and data companies see enormous opportunities in the smart city space (and IoT space more generally). To put that opportunity in perspective, Cisco recently observed that IoT spending was set to increase by 15% to reach $772.5 billion by the end of 2018.
While IoT revenue is still in the single digits for most telcos, IoT is expected to serve as a catalyst for telcos and technology players moving up the value chain.
Deutsche Telekom’s CEO, Tim Hoettges, recently flagged that 5G would accelerate the telco moving into “the solution space”, providing software platforms and standardised APIs to customers in healthcare, smart cities, automotive and other industry verticals, with the telco in increasingly taking revenue from services. Citing sensor-based parking in Hamburg as an example, Hoettges noted that:
“Our ecosystem is changing into a model where we participate on the revenue.”
As telcos and other players more closely integrate IoT networks (and upcoming 5G investments) with platforms and services to provide a one-stop shop (or “single neck to choke”) for smart city sponsors, we see revenue sharing opportunities becoming more prominent.
6. Business models that involve data monetisation are still nascent
Despite the emergence of revenue share partnering models, services that monetise the data elements of a smart city remain a work-in-progress.
The main challenges include the time it takes to build out a pipeline of rich data sets, the need to productise those data sets and insights and then make customers familiar with the benefits of these data services (e.g. improved speed and quality of decision making).
Externalised data monetisation also does not come naturally to smart city sponsors, telcos and technology vendors (compared to data companies, like Google).
But this is changing fast as the smart city sponsors and large telco groups (such as Singtel with DataSpark) continue to build up capabilities in this area.
7. Data sharing is still a challenge
The big data/machine learning algorithms that power smart city platforms are not able to reach their maximum potential unless they can ingest an abundance of rich data sets. It is also more difficult for app developers and start-ups to drive innovation in smart city services without access to rich data sets.
Garbage in, garbage out, as they say.
Most policy makers now understand the value of unlocking access to government data sets and have taken steps to establish open data portals. Some countries, such as the US and UK, have made phenomenal progress, but this is still a work-in-progress for most countries.
8. Smart city ecosystems will integrate more closely with 5G and other emerging technologies in the coming years
Smart city technologies currently revolve around a common set of technologies, including low-cost, long-life IoT sensors that gather data about the city environment and the use of cloud computing, big data and analytics/insight generation to support the provision of smart city services.
However, smart city eco-systems are set to become more complex over next 4–5 years, integrating more deeply with other technologies in the city. For example, autonomous vehicles will eventually interact with intelligent traffic flow and smart parking solutions deployed as part of a smart city. Smart city ecosystems will also become directly integrated into the heterogeneous data networks (or hetnets) that are being built by mobile operators.
The next generation of smart city eco-systems will also make greater use of:
- AI/machine learning to enable deeper, real-time insight generation from IoT data
- edge computing to address latency challenges with processing data in the cloud (e.g. to support autonomous vehicles)
- blockchains to secure user data, with a number of jurisdictions like Amsterdam and Dubai already moving ahead with a significant number of pilots.
9. Open standards will become standard
Smart city platforms that are built on proprietary standards and closed architectures raise significant risk, including vendor lock-in and higher costs over time.
Private sector partners will increasingly be required to build solutions that use open standards and architectures, and which can inter-operate with other solutions and vendors.
Smart city sponsors will increasingly push for the use of open standards and open architectures in tenders with private sector partners, propelled by increased standardisation in the IoT/smart city space.
10. Standardisation efforts will gather steam
Standardisation in the smart cities space is complex, as it potentially cuts across standardisation of the underlying input technologies that serve as the basis for smart cities, such as IoT and 5G services.
The last 12–18 months has seen a significant shift in global thinking about the need for dedicated standards (or best practices) for smart cities and we now have a range of efforts internationally to standardise approaches to building smart cities, including from the ISO, the European Commission, BSI and local standards bodies).
We see these efforts continuing and smart city sponsors increasingly making use of such standards when planning and implementing smart city projects.
If you would like to discuss the smart city space with us, please don’t hesitate to get in touch.