The Smart City Market

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The Smart City Sector – an Overview

There are several definitions of what makes a city ’smart,‘ for example, IBM defines a smart city as „one that makes optimal use of all the interconnected information available today to better understand and control its operations and optimise the use of limited resources.“ However, in short, a smart city uses a framework of information and communication technologies to create, deploy and promote development practices to address urban challenges and create a joined-up technologically-enabled and sustainable infrastructure.

• A smart city uses information and communication technology (ICT) to improve operational efficiency, share information with the public, and provide better quality government service and citizen welfare.
• The main goal of a smart city is to optimise city functions and promote economic growth while also improving the quality of life for citizens by using intelligent technologies and data analysis. The value lies in how this technology is used rather than simply how much technology is available.

The success of a smart city relies on the relationship between the public and private sectors, as much of the work to create and maintain a data-driven environment falls outside the local government’s remit. Aside from the technology used by a smart city, data analysts also need to assess the information provided by the smart city systems so that any problems can be addressed and improvements can be found.

Smart City Stakeholder Mapping

The concept of a smart city may seem very simple and understandable from an external perspective, but the complexity of the various forces and needs that influence it is often underestimated. Understanding these, responding to them individually, and including them in a holistic approach is, therefore, of great importance. That is why we briefly list some relevant stakeholders here.

Industry: Companies develop and provide the hardware, software, and infrastructure necessary for smart city solutions. They can work with local government and other stakeholders to design and implement solutions that meet the specific needs of a city.

Local Government is responsible for planning, implementing, and regulating smart city initiatives. They can collaborate with other stakeholders to ensure that smart city solutions meet the needs of citizens and are sustainable and cost-effective.

Non-governmental organizations: NGOs can advocate for citizen interests and provide expertise in areas such as social justice and environmental sustainability. They can collaborate with local government and other stakeholders to ensure that smart city solutions are equitable and sustainable.

Cizens: Are the end-users of smart city solutions and can provide feedback on the effectiveness and usability of solutions. They can also participate in co-creation activities to help design and implement solutions that meet their specific needs.

Financial Institutions: These provide funding and investment for smart city initiatives. They can collaborate with local governments and companies to design innovative financing models that enable the development and implementation of smart city solutions.

Academia: Universities, research and technology organisations (RTOs) provide research and expertise in urban planning, data analytics, and engineering. They can collaborate with local government and technology companies to design and test smart city solutions and provide training and education for experts, citizens and other stakeholders.

History of Smart-Cities

• The concept of smart cities began as far back as the 1960s and 1970s when the US Community Analysis Bureau started using databases, aerial photography and cluster analysis to collect data, direct resources and issue reports in order to direct services, mitigate against disasters and reduce poverty. This led to the creation of the first generation of smart cities.
• The first generation of smart cities was delivered by technology providers to understand the implications of technology on daily life. This led to the second generation of smart cities, which looked at how resourceful technologies and other innovations could create joined-up municipal solutions. The third generation of smart cities took the control away from technology providers and city leaders, instead creating a model that involved the public and enabled social inclusion and community engagement.
• This third-generation model was adopted by Vienna, which created a partnership with the local Wien Energy company, allowing citizens to invest in local solar plants as well as working with the public to resolve gender equality and affordable housing issues. Such adoption has continued around the world, including in Vancouver, where 30,000 citizens co-created the Vancouver Greenest City 2020 Action Plan.

Why Smart Cities are important

• 54% of the world’s population lives in cities, and this is expected to rise to 66% by 2050, adding a further 2.5 billion people to the urban population over the next three decades. With this expected population growth comes a need to manage the environmental, social, and economic sustainability of resources.
• Smart cities allow citizens and local government authorities to collaborate to launch initiatives and use technologies to manage assets and resources in the growing urban environment.
• A smart city should provide an urban environment that offers residents a high quality of life while also generating economic growth. This means delivering a suite of joined-up services to citizens with reduced infrastructure costs.
• This becomes increasingly important in light of the future population growth in urban areas, where more efficient use of infrastructure and assets will be required. Smart city services and applications will allow for these improvements, which will lead to a higher quality of life for citizens.
• Smart city improvements also provide new value from existing infrastructure while creating new revenue streams and operational efficiencies to help save money for governments and citizens alike.

Smart City Challenges

• For all of the benefits offered by smart cities, there are also challenges to overcome. These include government officials allowing widespread participation from citizens. There is also a need for the private and public sectors to align with residents so that everyone can positively contribute to the community.
• Smart city projects must be transparent and available to citizens via an open data portal or mobile app. This would allow residents to engage with the data and complete personal tasks like paying bills, finding efficient transportation options, and assessing energy consumption in the home.
• This all requires a solid and secure system of data collection and storage to prevent hacking or misuse. Smart city data also needs to be anonymised to avoid privacy issues from arising.
• The most considerable challenge is quite probably that of connectivity, with thousands or even millions of IoT devices needing to connect and work in unison. This will qualify services to be joined up and ongoing improvements to be made as demand increases.
• Technology aside, smart cities also need to account for social factors that provide a cultural fabric attractive to residents and offer a sense of place. This is particularly important for cities being created from the ground up and need to attract residents.

Sizing the Global Market – an Overview

The smart city market continues to gain traction, driven by rapid urbanisation, technological advancements, and increasing environmental concerns. As cities worldwide seek to enhance the quality of life for their citizens, optimise resource utilisation, and reduce their ecological footprint, the implementation of smart city solutions has become a priority.

The global market size is supposed to have reached about $550 billion in 2023 worldwide and is projected to grow strongly in the coming years – some experts are projecting a market reaching $1.2 trillion by 2028.

The growth is fuelled by several factors, including the proliferation of the Internet of Things (IoT) and connected devices, enhanced communication infrastructure, and the increasing need for efficient public services. Governments and private companies are investing heavily in smart city initiatives, focusing on areas such as transportation, energy management, public safety, and waste management. These investments aim to improve urban services, foster economic growth and promote sustainability.
The market landscape is characterised by the presence of numerous players offering a wide range of products and services, catering to various sectors within the smart city domain. These include startups, established technology giants, and specialised service providers, all competing to deliver innovative and efficient solutions.

European Market:

Smart City technologies offer municipalities across Europe a game-changing opportunity in terms of innovation and scale.

• This potential can drastically improve citizens‘ quality of life, stimulate economic growth, and create new value for all stakeholders.
• Savvy technologies are crucial to ensuring that cities are prepared to thrive in the volatile global trade patterns, urbanization, and consumption.

According to PwC’s „Building Smarter Cities for Sustainable Future“ report, which takes a slightly more conservative approach and excludes certain factors that were previously considered, the Smart City Market is still estimated to increase from EUR 60 billion in 2020 to EUR 242 billion in 2025, at a CAGR of 32.2%.

• These figures are supported by other studies, such as Statista’s forecast of global revenue generated by smart city products, services, and technologies reaching $ 129 billion in 2021.
• The IDC study „Future Scape“ predicts that investments in the smart city sector will increase to $203 billion by 2024, with spending on smart city technologies expected to reach $263 billion by 2028.

The European smart cities market is fragmented, with different cities and regions adopting creative solutions at different rates and with varying levels of success.

• This fragmentation is partly due to the diverse needs and challenges European cities face, ranging from large metropolitan areas to small and medium-sized cities and economically developed regions to more rural and peripheral areas.
• The fragmentation is also influenced by differences in regulatory frameworks, technological readiness, legacy infrastructures, culture, public awareness and engagement.
• This fragmentation presents both opportunities and challenges for business, policy, investment, and civil stakeholders. It allows for experimentation and innovation but also makes it harder to achieve economies of scale and replicate successful models across different contexts.

To overcome fragmentation, stakeholders are developing common standards, platforms, and frameworks to facilitate interoperability and collaboration among smart city initiatives and actors.

The Opportunity

The achievement of this future urban vision will depend on collaboration at all levels. Smart cities must adopt an inclusive approach that thrives on the contributions of cities of various sizes, industry players, and investors with the objective of attracting more investment and innovative business models to implement new, clever, and better solutions. Cities are responding by finding ways to promote better decision-making, not only by government but also by businesses and civil society, to foster collective intelligence in the town.

As we can see, there is enormous potential in the smart city sector if all possible business areas and adaptation options are bundled together. The growth is supported by constant population increase, limited living space, and pressure from the population and the government to find solutions through specific legislation that enable sustainable, cost-efficient, and liveable coexistence without running into a dead end. In future we therefore expect more innovative projects and startups coming up contributing to this massive opportunity.