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.

At a time where smart city projects are gaining traction globally and early adopters have started to deliver against their smart city visions, we think it's timely to make some high-level observations about the state of play in the smart city space.

Here are our top ten observations:

1. Policymakers 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 policymakers.

While the investment case for smart city initiatives can still be challenging, 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 for other industry sectors deploying IoT.

This flows from budget constraints on public spending and difficulties in achieving political consensus on spending priorities. It also doesn't help 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 modeling 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're already seeing smart city leaders looking to transfer their expertise to other cities. This includes knowledge transfer initiatives and through the “white-labeling” of smart city initiatives. We're also starting to see smaller cities “club” together to improve 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:

A. High levels of political investment

It's no accident that smart cities like Amsterdam, Barcelona, Dubai, and Singapore frequently rank as among the most successful smart cities.

A common theme in these jurisdictions is the reorganization of the political narrative and governmental priorities to bring the smart city agenda into focus.

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.

The goal of evolving into a smart city needs to become part of the political and social DNA of the city before any real, enduring initiatives will take root.

For large scale projects or those that cut across multiple levels of government, one sees strong advantages in setting up a specialist government body to drive and deliver the smart city agenda.

B. 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.

C. An integrated strategy for the city

Cities that are developing smart city solutions without a broader, integrated strategy are doomed to fail.

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. One that 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 realized.

D. They get the key enablers in place first

Singapore is a case in point. It's investing in a range of enablers to support its vision. This includes 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).

The City of Adelaide also provides a 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 and the local economy. Critically, Ten Gigabit Adelaide will provide the building blocks for a range of smart city projects. This includes intelligent traffic flow, autonomous vehicles, smart lighting, way-finding, and CCTV security Applications.

E. They focus on building smart cities at scale

Dubai’s approach serves as a great example. Its smart city platform, 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 the entire city.

Cities that focus on point solutions (e.g. smart parking or city WiFi in isolation) will struggle to get a decent RoI and miss 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's a range of models being used globally, public-private partnership (PPP) models are emerging as the dominant model.

The global engineering firm, Black & Veatch, recently noted that 60.5 percent of responses to its 2018 Strategic Directions: Smart Cities & Utilities Report considered PPPs to be 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. Examples include FIWARE, which has now been used in several cities such as Valencia, Spain.

The use of PPP models can introduce more complexity relative to traditional procurement approaches. This can raise challenges for public sector bodies 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 more generally).

Cisco recently observed that IoT spending was set to increase by 15 percent 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 standardized APIs to customers in healthcare, smart cities, automotive and other industry verticals.

Citing sensor-based parking in Hamburg as an example, Hoettges noted that telcos would increasingly look to take revenue from services:

“Our ecosystem is changing into a model where we participate on the revenue.”

Tim Hoettges, CEO, Deutsche Telekom

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 models becoming more prominent.

6. Business models that involve data monetization are still nascent

Despite the emergence of revenue share partnering models, services that monetize 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 productize 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).

Externalized data monetization also doesn't come naturally to smart city sponsors, telcos, and technology vendors.

But this is changing fast. Smart city sponsors and large telcos (e.g. Singtel with DataSpark) are working 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 aren't able to reach their maximum potential unless they can ingest an abundance of rich, high-quality datasets. It's also more difficult for developers and start-ups to innovate in the smart city space without access to rich datasets.

Most policymakers now understand the value of unlocking access to government datasets and have taken steps to establish open data portals. Some countries, such as the US and UK, have made notable 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 ecosystems are set to become more complex over next 4–5 years as they start to integrate with other technologies in the city.

For example:

• Autonomous vehicles will eventually interact with intelligent traffic flow and smart parking solutions 
• Smart buildings will connect with the city environment, removing a key data silo that exists today.

Smart city ecosystems will also become directly integrated into the heterogeneous data networks (or HetNets) that are currently being built.

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 Amsterdam and Dubai already moving ahead with a number of pilots.

9. Open standards will become norm

Smart city platforms that are built on proprietary standards and closed architectures raise significant risk. This includes vendor lock-in and potential interoperability risks, along with 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 standardization in the IoT/smart city space.

10. Standardisation efforts will gather steam

Standardization in the smart cities space is complex, as it potentially cuts across standardization 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. Efforts internationally to standardize approaches to building smart cities, including from the ISO, the European Commission, BSI, and local standards bodies), have started to emerge.

We see these efforts continuing. Smart city sponsors will increasingly make use of such standards when planning and implementing smart city projects.

Written by Ara Margossian, Partner at Webb Henderson