Smart city technologies offer economic value in more ways than one.
[dropcap color=”#BE1E2D” boxed=”yes” boxed_radius=”4px” class=”” id=””]B[/dropcap]ack in 2012, former chief globalization officer at Cisco, Wim Elfrink, said the following about smart cities: “When you get to a critical mass, the data on the benefits (of a smart city) is so compelling: a 50% reduction over a decade in energy consumption, a 20% decrease in traffic, an 80% improvement in water usage, a 20% reduction in crime rates. The concept of smart cities really sells itself.” By these numbers, it would seem smart cities really do sell themselves. Indeed, by all accounts, from reduced traffic congestion to improved public safety, the anticipated ROI (return on investment) for implementing smart city solutions can be compelling.
However, Daniel Obodovski, author of The Silent Intelligence: The Internet of Things, points out that there is a difference between ROI (return on investment) and monetization. How, if at all, are cities monetizing their connectivity and the resulting data? At what point—as adoption becomes more mainstream—will cities look to make a switch from saving money by leveraging IoT (Internet of Things) technologies to making money by leveraging IoT technologies?
“There are various IoT smart-city projects that have an ROI, but not necessarily a revenue opportunity attached to it—(i.e.,) improving public safety, reducing waste, becoming more climate resilient, better water monitoring, and many more,” Obodovski says. “At the same time, having a clear revenue stream might help a project get adopted within a city.”
In one example, using smart parking meters and data applications to improve parking utilization in a city can provide opportunities for direct revenue generation as well as indirect contribution to ROI on account of increased livability. “A more complex example would be monetizing data streams,” Obodovski says. “While public data is free, value-added services using public data don’t have to be free—we’re talking about potential subscription feeds that combine multiple sources of data, data analytics, and machine learning tools.”
While considering a monetization strategy can be an important part of a city’s transition to a smart city, Obodovski believes there are huge opportunities for cities to use technology to save substantial amounts of money. “I believe we still have a big gap between the technology and the actual problems cities have … for example, the city has a problem of reducing waste, or minimizing recycling errors… or a problem of minimizing the risk of wildfires in Southern California, minimizing the devastating effect on communities and businesses,” he says. “How do you solve these problems using sensors and data analytics? Ultimately, there’s got to be a way.”
In the case of wildfires, these events alone cause billions of dollars in damage. If cities and technology companies could work together to leverage technology to reduce the risk, even if it’s just by 10%, Obodovski says governments could save hundreds of millions of dollars in Southern California alone. “And (that’s) just one problem,” he adds. “Reducing waste, getting more visibility into energy and water usage optimization, and so on can unleash tens of billions of dollars of value.”
Spend Less, Do More
An important way cities financially benefit from smart city technology is by becoming more efficient. Jesse Berst, founder and chairman of the Smart Cities Council, an entity that promotes the move to smart, sustainable cities, says when done right, cities that become smart can end up spending less and doing more. “When you switch from ‘manual’ methods to new, digital and mobile solutions, you typically spend less over time while improving citizen results,” Berst says. For instance, he says citizens can be safer for less, healthier for less, more productive for less, and, ultimately, happier for less.
Collectively, Berst says the members and advisors of the Smart Cities Council have worked on more than 11,000 smart-city projects throughout the past seven years and he believes the technology has been thoroughly proven. “If you want your city to prosper, to attract new jobs and talent, then it must become a smart city,” he says. ‘Smartness’ is an essential foundation if a city wants to be globally competitive.”
When it comes to monetization, he points to opportunities for increased fee revenues, citing smart parking as an example, which he says can increase parking revenues by 10-35%. Besides the non-monetary value of reducing traffic congestion in downtown areas, Berst also says smart traffic solutions can increase tax revenues by boosting retail sales in previously over-congested areas.
In some cases, cities have developed more direct monetization strategies by setting themselves up to provide certain services. For instance, Berst says cities such as Tacoma, Wash., and Chattanooga, Tenn., sell high-speed Internet services to residents. While he believes there are plenty of strong, proven models for cities to look to for examples of how to finance a smart city and how to monetize smart-city services, he says a lack of knowledge about these models is hindering adoption.
Mike Zeto, general manager and executive director for the Smart Cities business unit at AT&T, similarly says there are multiple ways for a city to monetize smart city technologies; it’s just a matter of helping cities understand the possibilities. “There are shared revenue models around public Wi-Fi, sponsorship(s), and ways to use the data derived from smart cities technology to drive revenue for the city,” Zeto explains. “For example, using fleet data from the city’s vehicles can add value to an intelligent traffic solution provider.”
Benefits derived in the form of savings and increases in citizens’ quality of life sometimes outweigh what cities can actually monetize, Zeto says. For example, the ability to preserve natural resources and narrow gaps among socio-economic groups can be considered priceless. “Smart city solutions can help increase operational efficiency, reduce costs, preserve natural resources, and ultimately improve the quality of life for citizens,” adds Zeto. “As smart city adoption takes off, there will be new job opportunities—and new skilled labor—that will have a positive impact as well. Additionally, many cities are currently looking at how they can leverage smart city technology to close socio-economic gaps and bring new opportunities to the underserved.”
In terms of improving a city’s operational efficiency, consider the humble garbage can. Connected garbage cans that report how full they are allow for realtime dynamic routing of garbage trucks, which could result in more efficient operations. It could also reduce the number of trucks on the road, reduce traffic congestion, and reduce emissions. Smarter garbage collection is just one of many ways smart cities can leverage technology to spend less and do more.
While the solutions like smart garbage collection and other smart-city applications have been evolving throughout the past decade, cities must move beyond an à la carte view of putting together a smart-city strategy. “For the most part, cities are still strategizing and are purchasing individual smart city technologies within traditional departmental silos,” Zeto says. “The department of transportation may buy smart parking, or the department of water may deploy infrastructure monitoring, but there is little integration between these municipality silos.”
To truly reach the point where smart cities can maximize their investments in smart city technologies, cities need to work internally to break down departmental silos. Industry, foundations, government entities of all levels, and citizens must work together to develop financial and collaboration strategies that make sense to all parties that have a horse in the race.
Tonnetta Oubari, manager of smart cities and IoT—new product development and innovation at Verizon, agrees that cities in the United States face challenges that are holding back smart-city adoption, and one challenge is silos. “The government, just like any business, is siloed,” Oubari says. “When you break down the silos and talk about the benefits (of connectivity), it goes into so many different areas—sustainability, traffic, public safety, and economic development.”
Oubari points to the changing nature of U.S. governments within relatively short periods of time as another hurdle. “If you’re in a city and your visionary is a mayor (with) a four-year term and that vision takes longer than four years, but you’ve got a new administration coming in that could drop that vision based on different initiatives that the incoming (administration) might see as priority, that is just one of many examples of why it might be difficult for a municipality.”
After spending two years traveling the United States, the home of Silicon Valley and a global technology leader, and seeking answers to the question “What is holding us back,” Oubari says she finally gained the perspective to answer the question. “I had face-to-face interviews with about 300 mayors and county officials over the past two years to look at their challenges,” she says. “Basically all of them want this (technology). They say ‘how can I get it, we don’t have the federal funds. I don’t have the capital investment.’”
Verizon is trying to help cities overcome the funding barrier by offering a 10-year plan that allows cities to invest in smart infrastructure right now (specifically, by retrofitting bulbs with smart LEDs), without having to foot the upfront bill. Theoretically, the plan allows cities to pay less than what they’re paying now for their old, faulty equipment, so that they can begin running more efficient, reliable bulbs on a smart grid.
Oubari says the No.1 point she likes to make when talking to city officials is that a city can’t be smart if it’s not connected. In other words, a city needs an ICT (information and communications technology)-enabled infrastructure that allows for connectivity. “First, you start with your smart infrastructure, which is, you have to be connected,” she says. “Then, you can look at the different services, such as intelligent lighting and traffic, video monitoring, the different services that enable a city … the data monetization capabilities are there.”
Oubari says ultimately, data monetization is going to come through the cloud—through the value-added services built on a smart-city enablement platform. Likely, there are many applications that can be built on a smart-city infrastructure that cities and their private partners in the technology sector have yet to envision.
Cities’ ultimate goal in creating a smart-city strategy should be to craft a strategy that will continue to open doors to new services and applications for the foreseeable future. “There’s no longer a luxury to not have a connected, smart city,” Oubari urges. “If a city does not understand this and move forward, there’s a chance that they’re going to lose out economically in more ways than one.”