Is There a Smart City Market?

(OI00190-015)
Ovum (Published 04/2012) Page 1
This report is a licensed product and is not to be photocopied
ANALYST INSIGHT
Is There a Smart City Market?
Why does it matter, and who is going to make it work?
Reference Code: OI00190-015
Publication Date: April 2012
Author: Joe Dignan
SUMMARY
Catalyst
We are experiencing a second historical surge of population movement from rural areas to urban
areas. The latest UN report on the subject of Smart Cities suggests that the world will need to
create 10,000 new cities by 2040, and the Chinese are already committed to building 100 new
cities to accommodate the 385 million people reported to be moving from the countryside to the
city. There are to be seven new cities in Korea, six are being planned for Saudi Arabia, and there
are private sector developments underway such as PlanIT Valley in Portugal and Lavasa in India.
The current consensus value of the IT market for smart cities globally is approximately $35bn.
Ovum view
In the same way that we are moving away from putting an "e" in front of service delivery using
technology, we will likely lose the "smart" tag for smart cities. I have read many attempts to
describe what a smart city is, but it is much easier to describe what a smart city is not. Firstly, it is
not a city. It is a community of interests not defined by city limits, very often manifesting itself as a
city cluster of economic relativity. Some form of physical perimeter helps, but that is only in
conjunction with budget and policy authority. Secondly, it is not about IT, though access to IT such
as pervasive broadband is important. It is most certainly not about IT companies, but IT companies
are critical. Thirdly, it must not be thought about in lowest-common-denominator terms of
efficiency, productivity, shared services, cost reduction, or the imperatives of the Thomas
Gradgrind school of improvement. Neither is it the social capital panacea required of the "happy
clappy" school of big society.
Smart city is shorthand for technology-enabled services in communities, and it can be simplified
into four areas; four market areas for vendors and four concomitant policy areas for government
intervention.
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This report is a licensed product and is not to be photocopied
Key messages
An increase in the world's urban population is both unstoppable and, with current
infrastructure, unsustainable.
The smart city market is not one market but at least four.
A smart city is not just about IT.
Smart cities will need to be led by industries that have a longer ROI model than IT
companies.
Governments need to create smart policies to ignite smart practice.
The client is missing government needs to identify who it is.
Vendors need to combine forces to develop a common and open operating platform.
A smart city is a journey, not a final destination.
The smartest cities are starting with transport.
Why does the smart city market matter?
The world's first smart application in relation to cities was probably when someone felt it would be
a good idea to plan access that allowed goods and people to move freely in a concentrated area. I
will return to that thought later. The point is that cities have always been the crucible for smart
interaction between concentrated populations. There is a cornucopia of statistics on why cities
matter to the continuing coexistence of the burgeoning population of the world, and in the time it
will take you to read this report, there will be another 60,000 people living in cities around the
world.
Cities are the locus for human ingenuity, and they are the economic engine that we require as we
stumble through the early 21st century. If we accept the arguments of the city gurus such as
Glaeser, Florida, and Clark, cities are where the majority of the world's population wants to live. As
they suggest, and as is perhaps clear to anyone who has lived in a rural environment, it is great for
space and peace, but those are also two ways to describe a vacuum. Most people want more
opportunities. People are communal by nature and seek constant stimulation, and the greatest
stimulation comes not from virtualization of any description but from interaction with other people.
Equally, the best way to improve your and your family's economic prospects is through shelter,
heat, food, clean water, health services, education, and access to a job by which you can pay for
such needs. People look for those opportunities in cities.
Cities developed when hunter-gathers realized they did not need to follow animals to their requisite
food and water, but they could get the animals to follow them if they could provide the food and
water. Therefore, the first cities formed where there was smart, sustainable use of water and
natural resources. With apologies to Maslow's theory of motivation, cities developed in
Is There a Smart City Market? (OI00190-015)
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This report is a licensed product and is not to be photocopied
sophistication, starting with natural resources and moving away from that baseline through trade,
war power, education, religion, and culture.
Having dealt in 341 words with 5000 years of human history, where are we with cities and, in
particular, the misnomer, "smart" cities? Cities have always had to be smart to survive, and those
that were not smart disappeared; ask Ozymandias.
The point is that smart cities did not begin in 2007 with IBM, as they will be the first to admit, but
have been part of the human landscape for as long as there have been human communities. The
"smart" part of the equation is their ability to evolve and exploit what their age has to offer. A smart
city is a developing organism that takes advantage of the best contemporary technology. There
have always been technological advancements, but until the first quarter of the 20th century, they
could be understood by almost everyone. The game-changers of the late 18th and 19th centuries,
steam and combustion engines and the energies required to drive them, were physical, visible,
and part of an understandable natural landscape. With electricity and the development of the
telegraph, radio, and the telephone, technology became invisible and detached from common
understanding. Jump forward one hundred years, or four generations, and we are in an age in
which we commonly use more in our daily life than we understand; I still have difficulty
understanding how my fridge makes things cold. The question is: how do we use what is available
to us now to build the social capital needed to survive the next four generations? Creating smart
cities with smart communities is likely part of the answer.
What is the smart city market?
Cities are complicated, interdependent ecosystems that are being targeted by national
governments as the crucible for reanimation of the economy. Cities compete primarily
internationally, not nationally, and require the right mix of human capital, social capital, and hard
infrastructure to do so. Technology is a critical component of that infrastructure. A key question is:
what is the size of the market? And the only reasonable answer is that it depends on what you
include. A logical analysis of the consensus of opinion on how the smart city market stands would
be as follows:
The best, consensus figures that we have, based on a number of sources, suggest
that 50% of the world population already live in cities, and trends suggest that over
60% will live in cities by 2030.
The number and size of cities matter, because 50% of global GDP is generated in the
world's largest 600 cities, and there are 484 growing cities worldwide with a
population in excess of 1 million.
A recent UN report suggests that 40,000 new cities will need to be built worldwide by
2050.