Monday, June 27, 2016

Smart Cities Business Models Still Elusive

Business models always are among the earliest tasks whenever new technology is coming to market, and that will not be different for smart city initiatives. Though some trials can take place without a clear business model--generating revenue or avoiding cost--sustainable mass scale operations will require some clear idea of how new revenues can be generated or existing costs avoided.

And while proponents will avoid making arguments that are essentially “build it and they will come,” that manifestly is where matters presently stand, as a large amount of new revenue or cost savings are hard to describe.

And while reducing air pollution, improving parking or reducing traffic congestion are worthy social and governmental goals, none of those goals are going to be met without some definite and sustainable ability to pay for the infrastructure and operations, unless tax revenues are so abundant such goals can be met by taxpayer subsidies alone.

Early on, most observers would guess that a smart city infrastructure could generate revenue or save cost, often from multiple sources, in the areas of traffic management, parking, possibly Internet access, advertising or power savings are feasible.

What remains is to demonstrate that the aggregate new revenues and savings are sufficient to justify long term operation, as it likely remains the case that there is, in fact, still no killer app.

That does not mean one will not be found, or that some combination of values will be sufficient to drive and sustain investment. But we are far from having such knowledge.

Juniper Research, for example, suggests incremental revenue--globally--will be generated by
two million million smart parking spaces in operation by 2021. Skeptics quickly will suggest that global infrastructure cannot be contemplated or sustained--even in dense urban areas--by revenue from two million parking spaces.

So most proponents will argue that multiple revenue sources will develop. All that is possible, but also highly complex, suggesting a classic “chicken and egg” problem. Extensive and expensive infrastructure is required for many different business models to develop, but the existence of those revenue sources is needed to justify the investment.

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