Monday, September 29, 2014

New Smart City Opportunities for Service Providers

Tremendous new opportunities are being created for technology vendors and service providers as cities around the world look to build out smart cities to reduce municipal costs, tap new sources of revenue, and improve the overall quality of urban life. The previous blog (Smart Cities Are a $7.5 Billion Annual Opportunity for Technology Providers) described all of the essential requirements of the smart city architecture and quantified the great opportunities for technology vendors and partners to help to create and operate these digitally smart cities of the future.  The last question to address is what are the specific opportunities for SPs and where should they play to extract the most value from the deployment of smart cities?

The potential revenue opportunities available to SPs depend upon the strategic fit to their business.  Specifically, we evaluated the opportunities across three strategic fit criteria:

1.    Core Business – How closely is the solution or service aligned with the SP’s core business (e.g., using existing assets, leveraging current business operations and expertise, in regional footprint)

2.    Stretch – To what extent would new investments or operations be required to deliver the solution or service (e.g., Capex for new assets, creation of new business operations, acquisition of new expertise, out of region play)

3.    Deal Dependent – To what extent would the nature of the deal and the governance structure influence the potential revenues available? (e.g., vendor or lead, city investment or PPP)

Assessing the smart city revenue opportunities across these criteria reveals a number of strategic options for how SPs can think about approaching the smart city opportunity:

·         Core Business – essential part of the existing SP business – Network Connection

·         Closely Aligned – typically some of these are part of the existing SP business, or not very far removed from existing capabilities – Network Access; Technology Platform

·         New Area – new investments and capabilities would be required, but typically leveraging some existing capabilities – Operational Services; Smart City Solutions

·         Stretch – these are area that are not typically part of the existing SP business and would require considerable investment and new build – Program Management, Orchestration

·         Deal Dependent – these are the new sources of monetization (subscription, advertising, analytics, etc.); the realization of which will be dependent upon the deal structure – Monetization
Returning to our example of a smart city deployment for a city like Seattle in the USA (metropolitan population of 3 million), service providers could potentially generate new revenue across each of the strategic options as shown below.

For a typically medium size city deployment, like Seattle, a typical service provider could potentially generate at least $15M in new annual revenues from core or closely aligned businesses. Or, roughly one-half of the total smart city opportunity.  A global market opportunity of $3 to $4 billion of new annual revenues is readily within the grasp of SPs to help cities to deploy smart city initiatives.   And, that number could increase considerably if a service provider is willing to make investments in creating new capabilities and expertise. 

While there is a significant upside of new potential revenue, smart cities often have a broader strategic context for service providers.  As described in How SPs Can Profit from Digital Cities, there are additional benefits, beyond the direct revenue benefits, that SPs should also evaluate when assessing their involvement and options in smart cities.  Consideration of Ancillary Benefits (e.g., rights of way for network deployment on city assets; upsell to city, local businesses and consumers; customer retention) and Indirect Benefits (branding; PR/communications; customer experience; regulatory relief; government relations), together with the new sources of revenue, can create a very compelling business case for a SP’s active involvement in smart city opportunities.

Monday, September 8, 2014

Smart Cities Are a $7.5 Billion Annual Opportunity for Technology Providers

Cities around the globe are beginning to build out new digital services such as smart lighting, traffic, waste management and data analytics to reduce costs, tap new sources of revenue, create new innovation business districts and improve the overall quality of urban life. The previous blog (“How to Make Money from Smart Cities”) identified the great opportunities for the technology vendors and partners to help to create and operate these digitally smart cities of the future. 

The Cisco Smart City Business Architecture identifies a set of essential requirements in a number of different business layers essential for delivering and operating a successful smart city initiative.  In order to measure this opportunity, we developed a detailed economic model based on the business architecture.  We chose Seattle in the USA as a representative city, with roughly 3 million people in the greater metropolitan area, to quantify the potential opportunity available to technology providers.  Our model smart city initiative included covering 30 per cent of the city area with a Wi-Fi network and four key smart city solutions - traffic incident management, smart lighting, smart parking, safety & security.  In addition, we included the technology platforms, operational capabilities, and services in the Smart City Business Architecture. All of the services and solutions were modelled as managed services, generating an annual revenue stream to the provider.

Creating such a smart city solution for a city like Seattle could generate approximately $32 million in new technology and services revenues for technology vendors and partners.   This revenue is distributed across the architecture categories as follows:

Network connection and access comprise over one-third of the potential revenue opportunity.  The smart city solutions equal one-quarter of the total smart city opportunity and operations and leadership a further 19 percent of the potential revenue.

There are roughly 1,900 cities throughout the world with populations of 250,000 or more.  Twenty-six of these cities have in excess of 10 million inhabitants.  Making some very conservative assumptions on potential smart city deployments based on city size, we estimate that just over one-quarter (or 27%) of the world’s cities are viable candidates for smart city solutions over the next 3 to 5 years.  That equates to a global market opportunity of $7.5 billion of new annual revenues for technology vendors to help cities to deploy smart city initiatives to create significant new value for their cities and citizens.

Cities will need vendors and partners to provide solutions and services to make their smart city initiatives a success.  There are significant sources of new revenue available to providers who can deliver compelling solutions and value in each of the layers of the smart cities business architecture.   
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