Smart Cities - Huge Market Opportunity
Towards the end of the last decade, our planet achieved two remarkable feats. First, our human population crossed the seven billion mark and for the first time in history, 50 percent of the world’s population was living in urban areas. This is expected to accelerate to 60 percent before 2025, globally; with the Western, developed world reaching an 80 percent urbanization level during this time frame. Urbanization has become so important that it has elevated some cities, like Brussels, Seoul, Bogota, and many more, to be even more important than the countries themselves contributing to over 40 percent of the country’s GDP. Interestingly, the UK has already demonstrated its efforts in focusing on this Mega Trend of urbanization and city as growth hubs with the creation of a new ministry role called the “minister for cities.” This person is tasked with unlocking the economic potential of cities, thus giving them more empowerment and freedom to do so.
As we further congregate in cities, it has become more important to make cities not only green, but also efficient. As a result, we are now seeing some early examples of what I would describe as eco-friendly cities. There are several cities that are focusing on specific aspects that help it run efficiently, such as on their transport, energy and waste management. In example, implementation of smart grids is being pushed heavily for smart energy management. Major energy companies like GE are building and operating smart grids for cities such as Atlanta for a monthly fee through a cloud platform.
Many newly formed startup companies focus on specific segments of Smart City concepts. One of them is EnGoPlanet clean tech startup form New York City that produce intelligent Solar Kinetic Street Lights. This Smart Solar Kinetic Street Light are completely off the grid solutions powered by pedestrians footsteps and the sun, using kinetic energy pads and solar energy. This Smart street light solution can be very useful not just in urban cities that want to become "Smart" but it is also a smart way to light streets in many areas in the world that today do not have any lighting, mainly in Africa, India and South America. The first city in the world that installed this technology in 2016 is Las Vegas. This young clean tech company also produce Smart Solar Benches and other smart solar equipment for Smart City concepts.
While smart energy is essential, it is not the only aspect of a Smart City. A more coherent view of what exactly a Smart City is was made by my team at Frost & Sullivan, who scanned through numerous Smart City projects and initiatives currently undertaken globally and found some key parallels among them. We identified eight key aspects that define a Smart City: smart governance, smart energy, smart building, smart mobility, smart infrastructure, smart technology, smart healthcare and smart citizen.
It took us some effort to narrow down the definition (as none existed) and we eventually defined Smart Cities are those that have least five out of the eight “smart” parameters listed above. Those cities that are only implementing a couple of these are what we define as eco-friendly cities, like Nice in France. There are several Smart City projects out there like Masdar, but these are too small in our definition to be termed as an actual city. In 2025, it is expected we will have around 26 global Smart Cities which will feature five of the eight aforementioned parameters. Around 50 percent of these will be located in North America and Europe.
Among the 26 Smart Cities identified, Amsterdam has been one of the most forthcoming in implementing smart and intelligent systems in most of the above parameters; executing projects in energy, mobility and governance, among others. But the most interesting aspect of Amsterdam is that it has created a formal channel and mechanism through which such projects can be catalyzed, funded and implemented. Amsterdam City Project follows a 50:50 public-private model jointly funded by the EU, city government, and private participants.
Frost & Sullivan research estimates a combined market potential of $1.5 trillion globally for the smart city market in segments of energy, transportation, healthcare, building, infrastructure, and governance. If one compares that to GDP of nations in 2014, it will sit above the GDP of Spain, thus making it the 12th largest GDP in the world. Yet, while the potential is huge, the challenge faced is finding funding and developing the right business model, as many cities in the Western world do not have the finances available to take on some mammoth-sized projects. As such, four main models that will be used, through which companies will engage with city authorities and utilities to tap into this market will be used: Build Own Operate (BOO), Build Operate Transfer (BOT), Build Operate Manage (BOM) and Open Business Model (OBM).