03What is the state of the smart technologies market?
New technologies can help cities address their challenges and become smart. The UK’s Department of Business Innovation and Skills (BIS) has grouped smart solutions into five different categories – water, energy, transport, waste and assisted living solutions. Some examples of these include:
- Smart energy management technologies which consist of smart meters, smart appliances and other technologies that provide data and information used to improve the management of energy. Energy consumption data can help utility companies forecast energy loads and improve services and can help households to manage energy usage and save money.
- Assisted living technologies consist of software and appliances that help elderly people live independently and improve their standard of living. For example, Telecare solutions consist of using monitors and censors that enable patients to receive medical care at home. Research suggests that the use of such technology across the NHS can result in £1 billion of annual saving.23
The smart technologies market can extend beyond these five categories depending the definition used to describe a smart city. For example, software used to create open data platforms or provide online learning services to citizens can also be considered as part of the market. Some research institutions (see Box 2) also consider new building technologies and security solutions as part of the mix.
However, despite ambitious projections about the take up of smart technologies (see Box 2), progress in the UK has been slow. Most of the initiatives (as the case studies show) are small scale, funded by third party ‘special’ grants, and have no defined plans or business models to scale them up.
A review by the European Parliament of 240 EU28 cities implementing or proposing smart cities initiatives found that more than half of UK cities are implementing such initiatives.24 However, the UK lags behind other countries; in Italy, Austria, Denmark and Finland more than 75 per cent of cities are involved in this agenda. Moreover, the report added that the number of mature and successful projects in the EU is low and it had to rank ‘successful’ initiatives based on vision and goals rather than outcomes.
Box 2: Value of the smart cities market
The UK Department for Business, Innovation and Skills (BIS) evaluated the global market for smart solutions across five sectors –water, energy, transport, waste and assisted living –and estimated its value to reach $400 billion by 2020 of which 10 per cent can be reaped by the UK.24
The U.S Market research firm Markets and Markets adopted a more general definition – which includes smart building and urban and cyber security among other technologies – and estimated the market at $1 trillion by 2016.26
The global business consulting firm Frost & Sollivan valued the market at $1.5 trillion by 2020. The firm also adopted a wide definition that encompasses seven sectors including security, infrastructure and healthcare among others.27
What are the barriers to progress?
Most smart initiatives involve the use of new and disruptive technologies that allow things to be done that weren’t possible before.28 As a result, smart technologies require the creation of new markets with new ways of working and new financial and governance models.29 These markets also need the right conditions to emerge: a new innovation and entrepreneurial ecosystem where stakeholders interact effectively and where new business models and ways of working can be created so that new technologies can be adapted. Without this ecosystem, the smart technologies industry is unlikely to grow and mature.
In particular there appear to be seven barriers that need to be overcome if the market is to mature and grow.
- Constrained demand from cities for smart initiatives. Recent cuts to budgets are forcing most cities to concentrate on providing statutory services rather than ‘thinking outside the box’ and testing high-risk smart initiatives, even if these might actually save money.30
- Business models for rolling out smart technologies are still underdeveloped. Even if money was available for investment, most of the smart technologies are still in their pre-commercial stage of development and the risk-sharing mechanisms and business models needed to take them forward are yet to be tested and developed. These mechanisms need to be available before smart technologies can be publicly procured, mainly because they represent a higher-risk investment for the cash-strapped public sector. The lack of business models also restricts the availability of private sector financing, since the uncertain financial returns and long payback periods of many smart initiatives makes capital markets and traditional commercial financing rather inaccessible.31
- Cities lack technology-related skills and capacity. Cities need to understand which technologies are available and how they might benefit their places in order to be effective co-designers, commissioners and clients of smart city projects. This requires specific ICT and technology-related skills and expertise which are often scarce within cities.32
- Cities find it difficult to work across departments and boundaries. Many of the smart cities initiatives include integrating different policies and information systems such as linking cycling with carbon reduction or integrating data relating to unemployed individuals from different departments onto a single platform. This requires breaking down silos and joint working between departments and across boundaries. At present, budgets and strategies are seldom coordinated across departments and data is rarely shared. For example, funding for roads, rail, and sustainable transport is set separately.
- Cities have limited influence over some basic services. Utilities such as gas, electricity, water as well as bus services, are privatised which makes it challenging for cities to implement city-wide smart strategies that need the commitment of private utility companies.33 In Greater Manchester for example, the combined authority would have to get the consent of 66 bus operators to introduce an integrated ticketing system.
- Concerns about data privacy, security and value.34 Data needed for initiatives such as open data platforms and the integration of health services is not always accessible. This is mainly due to privacy and security issues or other difficulties such as the lack of technical knowledge to generate or manipulate data. For example, the launch of care.data, a database which integrates data gathered from GPs with hospital medical files was postponed due to concerns over data privacy and possible breaches.35 Moreover, the techniques to analyse data, communicate it and use it are yet to be fully developed and its monetary value is yet to be understood.36 As a result, councils, businesses and other involved parties do not fully understand the value and benefits that data can generate, which makes the business case for releasing it hard to establish.37
- Increasing citizen take up and participation is difficult. Currently, cities and the private sector are finding it difficult to increase citizen participation in the smart agenda beyond the committed few. This is due to some people having limited access to broadband or not having the skills and confidence to use the internet – especially in low income communities and among older people.38 With e-services and online consultations becoming more popular, this creates the risk of social and political exclusion among these groups. Moreover, people might not have enough information on how the technology (such as smart meters) can be used39 or see it as irrelevant to their daily lives.40 Issues around what kind of data citizens value, whether they understand the privacy and security implications of sharing their data and how smart technologies can benefit them are yet to be fully explored and understood.41