August 3: The number of smart cities worldwide will quadruple within a 12-year period that started last year, proliferating as local governments work with the private sector to cope with a multitude of challenges confronting urban centers, according to a new report from IHS Technology entitled, “
Smart Cities: Business Models, Technologies and Existing Projects,”
There will be at least 88 smart cities all over the world by 2025, up from 21 in 2013, based on the IHS definition of a smart city. While the combined Europe-Middle East-Africa (EMEA) region represented the largest number of smart cities last year, Asia-Pacific will take over the lead in 2025. In all, Asia-Pacific will account for 32 smart cities of the total in nine years’ time, Europe will have 31, and the Americas will contribute 25.
“Smart cities encompass a broad range of different aspects, but IHS has narrowed the definition of the term to describe cities that have deployed—or are currently piloting—the integration of information, communications and technology (ICT) solutions across three or more different functional areas of a city,” said Lisa Arrowsmith, Associate Director for connectivity, smart homes and smart cities at IHS. “These functional areas include mobile and transport, energy and sustainability, physical infrastructure, governance, and safety and security.”
City projects in the Americas are typically somewhat narrower in scope than those found in Europe. Unlike broad projects underway in cities like Vienna or Amsterdam, U.S. projects will often focus on a single functional area, such as mobility and transport.
Meanwhile, many of the budget issues facing government expenditures in the well-developed economies of Europe are not found to the same extent in the Asia-Pacific region. In effect, this has the potential to create more scope for investment in smart city projects in Asia-Pacific, where projects are sometimes based around creating new infrastructure, rather than replacing legacy systems.
Under the smart city definition of IHS, annual investment on smart city projects reached slightly over $1 billion in 2013, but will go on to surpass $12 billion in 2025.
Figuring out investment returns
When considering the long-term viability of smart city initiatives, it is important to assess not just direct revenue-generating opportunity but also the broader return on investment, Arrowsmith said. This has implications for both the public and private sectors collaborating on smart city projects.
Because cities continue to face budget constraints, quantifying the level of cost reduction that can come about must be a top priority. Here the obvious effects of cost savings and other benefits can be measured.
Just as significant, however, are the intangible benefits to be derived. If city denizens feel that smart cities improve their way of life, the likelihood of them leaving is reduced, helping the city maintain revenue through the taxes that are collected. Meanwhile, territories can attract new talent or businesses dazzled by the prospect of living in a smartly functioning city. Ultimately, the intentions of smart city projects—and the associated return on investment—will depend on the smart city technologies being put to use, IHS believes.
Various business models offer opportunities
Smart city projects are typically deployed via partnerships between the public and private sectors. The main business models include build-operate-transfer (BOT), build-operate-comply (BOC) and municipal-owned-deployment (MOD).
The most common model is BOT, where city planners work closely with an external private partner that, in turn, develops the services and deploys the necessary infrastructure. The third party is also responsible for the operation and continued management of the infrastructure, until such time when it is transferred back to the city.
The BOC and MOD models, in comparison, assign varying levels of responsibility in the building, operation or maintenance of smart city projects for the public and private sectors that are involved in those works.
