The new market in 'smart cities'
Andrew Comer You will recall that the thoughts for this discussion started when we began seeing some fantastic television advertising by IBM on 'smarter cities'. There are a lot of companies piling money into promoting the 'urban' technology side of their businesses: Cisco, Siemens, General Electric, Microsoft …
Kerwin Datu Do you think they know what they're selling, or are they just trying to find their place in a new market?
AC These are smart companies — global, amazingly sustainable businesses. I suspect they're all sitting back and thinking 'where are the next big markets going to be?' We did an exercise on this as well. There's a UN report on the number of new cities being developed around the world. [According to UN-HABITAT's State of the World's Cities 2008-2009, 510 new 'small' cities, 132 new 'intermediate' cities and 52 new 'big' cities emerged between 1990 and 2000, with a combined population of 254 million.]
In a lot of middle income countries, like South Africa and Brazil, you see enclaves created more by fears about security, and in the UK, these private enclaves are more often about quality. How do you offer that quality without jeopardising the rights of citizens?
If you project that figure into the future, multiply it by a fairly conservative estimate of the construction costs involved, and take a relatively small percentage of that for high-technology infrastructure, it's trillions of dollars. If these hi-tech companies can capture parts of this market, they have a twenty to thirty year period of insatiable growth. But these new cities are only one part of the opportunity; the other is the retrofitting of new technology to existing cities.
KD Which is the bigger market?
AC It's not really necessary to think about it; they'll both be huge. But probably the bigger technical challenge and the bigger wins will come from retrofitting. The thing is, these companies are trying to introduce their technology plays, but how is it all brought to market? What they have now are products, but how can they be brought to play in cities, and who are the people who will need to play key roles to unlock the undoubted potential of the technology?
In my opinion, it is the engineering profession that needs to step forward to better understand the potential of the progress being made in science and technology and ensure that it is deployed for the benefit of future societies.
Privacy versus profit, public versus private?
AC The further question to ask is, as all this technology begins to be deployed, who is it who benefits? How does that benefit manifest itself? There's lots of thought given to the technology itself, but less, I think, to the questions of governance. Who pays for this technology? Is it the private sector, or the community? If it's the private sector, do they continue to own it and all of the data connected with it? And in either case, how do we maintain its security? And is it really going to make places better to live, or create some kind of Big Brother apparatus? How do we balance fairness to investors with fairness to citizens?
One could go further and ask, can you have a private city? Because that's what you could end up with. Will new cities be run as private cities? In a lot of middle income countries, like South Africa and Brazil, you see enclaves created more by fears about security, and in the UK, these private enclaves are more often about quality. They're about building a level of services that the municipality cannot provide itself. How do you offer that quality without jeopardising the rights of citizens? The Chinese government gives the impression that they are managing this demographic shift into cities in a fairly systematic manner, but I'm not sure whether other countries will be able to do the same.
When one considers the cost involved in deploying technologies and retrofitting cities — the meters, sensors, regulators, connecting systems and networks, etc. — and given that public sector funds are very low right now, the onus will naturally fall to the private sector for financing. When you have a big corporate entity offering to put all this resource-saving technology into play, they will quite rightly look to profit by taking a part of any cost savings or market opportunity. But, how much is fair for them to take? Can't the community, the individual, share in this windfall? Who is brokering these agreements? Who is making sure people get a fair deal? Who in local or regional government has the skills and the experience to negotiate these kinds of deals? It needs individuals and organisations with the experience to make sure cost estimates are correct, income projections are reasonable, and that these financial models won't be blown out by shocks like oil price hikes in the future.
KD It's a classic oligopoly problem — the prices for these technologies are set by market competition, but you only have very large players with all of the information.
AC Yes, do we have sufficient regulatory bodies to govern these deals? Perhaps we do in the UK, but elsewhere they are likely to be less sophisticated.
Another further question relates to the systems and the fact that they are managing data about end users. That's potentially a lot of very valuable information about people and their dispositions. Who owns the data? Retailers, amongst others, will pay a lot of money for this kind of information. It's not to say that they shouldn't be allowed to access it, but how do you find a balance between enabling productive uses of that information, and maintaining the privacy and/or the benefit for the public? People have a right to ask companies, what are you doing with this information? Who is earning money from it? Can we stop you if we don't like it? Of course, the very technology by which that information is collected should also be the means to empowering citizens to challenge the process. This is where live reporting can come into play as well.
KD Like a Google Analytics for each home system.
AC And it's not just about corporate reporting. Governments and municipalities can provide the same live reporting mechanisms on their services.
KD Some of these new city projects seem to derive from a technocratic impulse — an assumption that at least some of the political problems that arise in cities emerge from the use of inefficient technologies, and that by improving the technology you can remove these problems, when in fact it just complicates them.
AC I would say that in one of our main projects featuring high-tech or 'smart' infrastructure, PlanIT Valley, there is an acknowledgement that the broader aspects of city governance are probably as much if not more of a challenge than the technology or the real estate plays. The client, Living PlanIT, is aware that it can't resolve these issues on their own, that there are significant governance decisions to be made and they will need to be working it out with other stakeholders, including of course regional and central government.
Creating competition in the market
AC A number of companies would ideally wish to put their smart metering and other technical products directly into the home. It then has the potential to become a direct source of income to them. One argument is that there should be communal hubs managed by the municipality or organisations on behalf of the community to provide a market check. This would enable the mayor or community to charge for access to that hub, and capture some of the value for the community and individuals. This is not to suggest that this is how it should work, but simply an illustration of how markets could be managed. It is similar perhaps to the rail business in the UK; the railway infrastructure is owned by Network Rail, a public-sector body, and train operators must pay to run trains on that public network. The same could happen with smart technology.
Another problem is that the various proprietary systems currently don't talk to each other. For instance, traffic network management systems are all built by the same four or five major players, but they are all creating bespoke systems for their clients. In one city, you will have a certain company providing one set of components. In another city, another company is providing a similar service but with completely different products. It's very difficult for a city having a chosen system to change provider. It's currently the same problem across the 'smart' technology industry. In an ideal world, we would have common, open-source platforms that can accommodate all of these systems, and manage the transfer of information between them all. It would be more democratic, create more opportunity for competition, and make it easier for new players to bring new products to market.
KD So integrating the management of cities requires integrating the technology market.
AC I would say that's one big hurdle to clear.
The role of engineers
AC Take the example of energy and the reduction of our carbon footprint … as engineers there's a lot we can do. We can work out zero carbon systems, we can source local energy, we can manage the peaks and the troughs to better balance supply and demand. We can create systems where the energy demands are greatly reduced compared to the current norm. Yet the really big win in all of this is actually behavioural change — people learning how to operate things a little better and make adaptations to their lives. The companies at the heart of these industries can do a lot to help the individual help themselves, for instance by maknig the data they capture more available and educating the individual in how they use these systems.
KD People used to baulk at the phrase behavioural change because it meant a compromised lifestyle.
AC It's really about providing information so that people can make an informed choice. And regulatory authorities could do more to help in this. For instance, in the UK, the method by which water is charged for is that you have a decreasing rate the more you buy. There's little incentive to save water, to change behaviour. If you rethought the charge mechanism, that single change could quickly transform how people think about water and its use.
KD Overall, it seems that the 'smart cities' arena is dominated by lots of professionals, but perhaps very few generalists.
AC The great engineer Isambard Brunel described himself as a comprehensivist. His job as an engineer wasn't just designing infrastructure or ships or railways, it included raising the funds, building the business model, sorting out the politics, satisfying shareholders. We, professional engineers, have to step out of our comfort zone and into these other arenas if we want to contribute to answering these challenges and opportunities.