Smart city technology is emerging rapidly and promises to change our lives for the better: increased connectivity and more intelligent data processing will provide more information to inform better decision-making and improve our public sector services. However, significant investment will be required to make these benefits a reality.
Tim Winchcomb, Senior Consultant in Technology Strategy, discusses where that investment will come from and the possible business model approaches.
We’re seeing more and more about smart cities in the news and hearing how our lives could be improved.
There are two main ways that our lives might be improved by smart city technologies. Firstly by making more information available to inform our decisions, for example which public transport we should select, and secondly for actually improving the city services that are provided by the public sector. It’s worth noting that it’s not just cities that will benefit from smart city technologies, but also less urban communities. Generally though we find that the benefits are delivered in places of greater population concentration, so we tend to talk about smart cities.
There are two implications of the word ‘smart’ in smart cities. Firstly, increased connectivity - so distributed sensors around the city and a means of communicating that data back to make it available. Secondly, more intelligent processing of that information - to analyse it and deliver insights, so that we can make decisions from it.
There are many benefits for both residents and businesses from smart cities, but they do require a significant investment. Of course investment is easier where we’ve got real benefits being delivered quickly. So applications that offer big improvements, or that will save significant costs, will be those that we see leading in smart cities. So, for example, better information about public transport or monitoring traffic around the city, rather than some of these futuristic applications which are no doubt coming, but the business case isn’t quite so clear at this time.
Now crucial with the business models is to align that investment case with the benefits that are delivered. Investment is needed in sensors, communications, cloud processing and more, but the benefits are spread across all residents and businesses in the city. This makes it very difficult to charge for it. As a result it seems most likely that the public sector will be called upon to make that investment.
There are a number of different business model approaches that can be used for delivering smart cities:
Firstly, we see the public sector making investments from their own budgets in order to reduce their own costs in delivering services. This is good in the short term, and often delivers quick wins, but the challenge here is that the budget holders are often fragmented. Where a system needs investment from multiple budget holders it can difficult to coordinate that.
Secondly, we see places where the public sector is investing to improve their services, to deliver new services and to promote economic growth. This is difficult at a time of constrained budgets but in the long term we expect this to be the primary way of investing in smart cities.
The third business model is where we might see the public sector making investments for long term revenues and profit. They will need a strong business case for that but also to ensure that risks are understandable and measurable. The challenge here is that it’s so often difficult to charge the beneficiaries of a service where there are many users enjoying the benefits.
The fourth business model that we’re seeing is a hybrid approach, where the private sector, the public sector and academia are all collaborating in order to push the boundaries of smart cities for the interest of their city. This is working well for these pioneering cities where the technology is new, but it’s perhaps not scalable once that technology is established.
So in conclusion, we’re seeing smart city technology emerging and making people’s lives better, but there is investment needed. It depends on getting the business models right for those early applications. Finding the right business model is critical in matching the investment with those benefits. Once smart city platforms are established, I’m sure we’re going to see many different applications emerging that will bring great benefits to us all.