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Innovation in Business Models and Procurement Key to Accelerating Smart Cities Market

Ryan Citron
Sep 10, 2018

Connected City 4

City leaders are recognizing that smart technologies can help address 21st century urban challenges and improve quality of life, economic opportunity, and livability for their residents. However, a critical market barrier is impeding the growth of global smart city development; cities often have difficulty raising the adequate funding and attracting financing for smart city projects.

The proliferation of innovative business models such as new forms of public private partnerships (P3s), energy savings performance contracts, as a service offerings, investment recovery through advertising, green bonds, and social impact bonds are being used to help accelerate the adoption of smart city technologies. These various funding mechanisms have helped cities develop smart city projects by:

  • Reducing or eliminating the need for upfront capital investment
  • Providing private sector efficiencies and expertise to city service delivery
  • Lowering the financial risk and burden for taxpayers
  • Increasing project focus on measurable outcomes
New Forms of P3s Driving Market Growth

P3s have become one of the most commonly used business models for smart city projects.

Over the past few years, P3s have evolved from being used for basic infrastructure solutions (e.g., highway construction) to more innovative initiatives that attempt to address complex city challenges. For example, in Dubai, the city’s Smart Dubai team has partnered with local telecom operator, du, to build its smart city platform, Dubai Pulse. The platform serves as the digital backbone of the city, connecting a range of city services and sectors into one secure centralized data portal. Smart Dubai and du are also using their partnership to assess how new technologies like blockchain and artificial intelligence can be added to the platform in the future.

Procurement for Innovation

Cities can also accelerate smart cities development by designing their request for proposals (RFPs) in a way that encourages innovative solutions from the private sector. Cities offering open and flexible RFPs to learn about and consider an array of different smart city innovations will generate more smart city business opportunities. For example, the City of Pittsburgh has followed an effort by Boston to design a less prescriptive and more open RFP to allow for additional smart city integration with its smart street lighting overhaul. Through this approach, Pittsburgh received many proposals outlining the potential for additional applications beyond smart street lighting. If the RFP was only targeted at a street lighting upgrade, the city would likely not understand the realm of possibilities associated with using a smart street lighting network as a platform for broader smart city innovation.

Overcoming the Finance Challenge

Financing the development of smart city projects continues to be one of the most significant challenges in the market. Clear business cases have been established for some smart city technologies, like the transition to networked LED lighting. However, other innovative smart city use-cases such as smart parking systems, mobility solutions, environmental monitoring, and smart waste are all at different stages of maturity and have generally been more difficult solutions to finance. Innovative business models and city procurement policies need to be further utilized to accelerate adoption of these and other smart city applications.

For more detailed case studies and recommendations on how evolving business models and city procurement policies can be used to accelerate smart city development, keep an eye out for Guidehouse Insights’ upcoming Strategy Insight report on smart city business models, Innovative Business Models Key to Accelerating the Smart Cities Market.