Smart City market revenues to grow to $2 trillion by 2020

27 August 2015 4 min. read

Smart City revenues are expected increase by almost 14% in the coming years, growing to $2 trillion by 2020, research by Arthur D. Little shows. According to the consultancy, Smart Cities can help improve GDP growth by up to 15%. In its report, the firm considers the development of Smart Cities and a number of key success factors in the development to being fully integrated.

As the world is turning ever more towards urbanisation, the number of people living in cities will continue to grow over the coming decades. This increase comes with both challenges and issues for the urban eco-system – from housing and traffic management to public health and education. Smart Cities, those that leverage a number of technologies to provide an eco-system that supports a wide range of services and solutions, are on the rise. Recent research from Gartner foresees the number of Internet of Things devices deployed in smart cities to increase to 2.6 billion by 2017.

Smarter cities
The number of Smart Cities around the world is expanding rapidly. More than 100 cities are currently implementing some form of smart city concept. The biggest development trends include Big Data-enabled services or providing information to the private sector to develop ‘open’ Smart City services.

Smart City revenues growth

Investment in such Smart Cities has also increased and particularly local governments are investing in the modernisation of residential and social infrastructure (e.g. housing and schools). “Today, the majority of Smart City investments are flowing into Smart Grids, reduction of carbon emissions, public broadband (e.g. free Wi-Fi) and Building Automation,” says Ansgar Schlautmann, Global Head of the Innovative Business Designs Competence Centre from Arthur D. Little and Co-Author of the study.

The research shows that as a result of this continued investment, global Smart City revenue growth rates are projected to be 13.9% over the coming five years, with their combined revenues increasing to $2.1 trillion by 2020.

City development trajectories

Smart city development
“No Smart City concept is alike - We have compared multiple cities around the globe and have identified that they are at different stages on the development curve of integrated Smart City networks,” explains Schlautmann.

The earliest stage of such development, according to the research, sees cities invest mainly in marketing, thereby improving the city image and creating momentum and awareness. Examples of such cities include Bern, Frankfurt and Atlanta. The second stage usually sees fragmented pilot Smart City applications, without implementing wide ranging deployments, as seen in Berlin or Dublin. Eventually, some cities are expanding this concept into a number of vertical Smart City initiatives including Helsinki, Vienna and Luxemburg – however, the developments are usually following a ‘Silo’-approach and do not support the citizen End-to-End.

Cities that want to unleash the full potential of ‘Smartness’ are rather following a ‘platform approach’ that acts as an aggregator and coordinator between the various verticals of a City – thus allowing to gather more meaningful information and offer cross-vertical services ‘End-to-End’. Examples of platform cities include Nanjing, Manchester, Valencia and Seoul.

Smart city success factors

Success factors
According to the research, a number of factors can contribute to high GDP growth in relevant cities and regions. A fully integrated smart city layout can contribute to an additional 15% of GDP growth. To realise this, cities need to lay out a common strategy that links together vertical initiatives from a variety of stakeholders into a single platform designed to provide horizontal development of initiatives within the city as a whole.

“Cities that are thinking about the extension of their services should aim at the ‘horizontal’ platform approach from the beginning, as the experience shows that the aggregation of strong vertical offers within the City is extremely difficult afterwards,” concludes Schlautmann.

To establish such a platform early, the consulting firm finds that local government needs to invest in an active top down strategy, for a consistent and fully integrated platform with the roll out of initiatives done in phases from the most critical needs to those of lesser demand. Entering into strategic partnerships with relevant initiatives allows a city to have the kinds of tools and capabilities available to initiate relevant projects. Finally, cities need to inform their citizens of the kinds of projects and technologies available for them to use in the context of improving their daily activities.