October 2017 - Smart City | Economic Impact of Connectivity | Doing Business in Germany

Smart City & Smart Home – The Opportunities and Benefits for Companies

How can companies position themselves to participate in the phenomenal growth expected in the smart city and smart home markets in the coming years? Lars Riegel from Arthur D Little, author of the eco association studies on smart city and smart home in Germany, explains.

Smart City

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This interview was first published in the German language on the eco Audiomagazine on Smart City and Smart Home

eco: When we talk about “smart city” and “smart home”, what exactly does that mean?

LARS RIEGEL: “Smart city” is about offering things that are connected, such as traffic control systems, security systems, e-commerce and healthcare systems. So, things you would use as a citizen in a city. These things will now be equipped with sensor technology that is connected to the Internet, and thus gain more functionality, i.e. they become “smart”. For example, street lamps can now be equipped with traffic flow sensors. If you then connect this street lamp to the Internet via a mobile communication antenna or a fiber cable, and then bundle, aggregate, and analyze the data from this traffic sensor, you can do a lot of great things with it – among other things, analyze the traffic flow and if necessary influence the control of the traffic lights, in order to phase the green lights so that citizens spend less time in traffic jams. In principle, it is a great thing.

Smart home” is also about the possibility of connecting Internet-enabled devices at home with each other and evaluating their data output in order to improve the quality of life. For example, if you now have a smart thermostat with Internet access installed on your heater, you can program it so that when you leave the house, the heater shuts down automatically, and when you are on your way back home, the smart app will notice that and reactivate the heater. This has the advantage that the temperatures at home can be controlled more comfortably and in detail, reducing energy costs and, as a nice side effect, protecting the environment. With this kind of connectedness, many great things are possible – and this market will grow by more than 20 percent each year until 2022

eco: How much growth can be expected from the smart city and smart home market? 

RIEGEL: We are dealing with two markets that are both extremely important and attractive – which is why the eco Association chose these areas to study. Both markets are growing massively – the smart city market at an annual growth rate of around 16 percent and the smart home market at as much as 26 percent per year. For companies in the Internet industry, these are extreme growth areas, where they are making in effect 16 percent more revenue per year, up to 26 percent for the smart home market. In collaboration with us, eco – Association of the Internet industry wants to use the studies, “Smart Home” and “Smart City”, to show where the opportunities lie and how companies, especially eco members, can benefit from this development

eco: In this respect, what are the challenges for companies in these areas? 

RIEGEL: In both cases, smart city and smart home, we are dealing with so-called ecosystem business models. What do we mean by this? There is no company that can really offer entire end-to-end solutions. Smart/IoT business models are all about the fact that as a company, if you want to be successful in these areas, you have to integrate into these ecosystems. This means that as a company you have to cooperate with other market players in order ultimately to be able to offer customers a solution. There is no company that has the capacity to provide everything from a single source. The required competences and abilities are too diverse for a single company to be able to offer them all. There are certainly companies that provide a great deal of services and smart solutions, such as, for example, Amazon and Deutsche Telekom in the smart home sector, or Cisco and Hewlett Packard in the smart city segment. Be that as it may, these companies must also open up and cooperate with other market players.

eco: How well is Germany positioned? For example, in the smart city sector? 

RIEGEL: In international comparison, Germany is certainly not at the top of the ladder. Germany is definitely not yet living up to its full potential in this area, despite being one of the leading economies. This can be regarded as of some concern – other cities have a clear lead in the smart city sector. That is why we have also been in discussions with many different committees about what the reason could be for this. When comparing European cities, how can it be that Barcelona is more advanced than many German cities? Now, in the smart home sector, why is it that there is a significantly higher penetration of smart home services in the US consumer market?

The causes vary between smart home and smart city . As far as the smart city sector is concerned, we do indeed see that there has been a clear push from governments in the leading international cities. In this respect, Singapore and Dubai are international frontrunners – small countries that are tightly organized and therefore have completely different possibilities to accelerate the process, such as adjusting regulations and making funds available to push things forward. This would have not been possible in this form in such a large and complex country as Germany. So, there are smaller countries which have a clear advantage and make the most of it.

However, there are also European countries, such as Spain with Barcelona, which have been quite successful in this field. We see the difference in the smart city services that have reached market maturity. Although there are interesting pilot projects in many German cities, we haven’t yet seen many services reach the go-live phase. The consequence is that German companies are lagging behind internationally, which is why we want politicians to provide cities with more funds and also regulations that encourage the development of open smart city data platforms – thus laying the foundations for a thriving smart city ecosystem. We would like to see a greater growth and acceleration in these areas in Germany – one of the main reasons behind the preparation of the studies. 

eco: Does that mean there should be a change in thinking?

RIEGEL: One thing is certainly important. German industry, as successful as it is, was made successful through behavior like strong vertical integration with their suppliers (where Germany is really in the lead internationally) and the so-to-speak “zero-error” culture, which has made German industrial products known worldwide for their quality – this behavior does not lead to success in the smart business areas. Here, we also need to cooperate with market competitors in these areas, i.e. we need to open up horizontally in order to provide better data for our users and to incorporate feedback from as many users as possible to improve our products. At the same time, we must also try to distance ourselves from our zero-error culture, because today’s successful companies also launch products which are perhaps not yet 100 percent mature, but which can be improved through, for example, software updates – so that the product can be improved while on the market. These are areas where German companies need to rethink their approach, and where it is especially important to cooperate.

Please note:
The opinions expressed in Industry Insights published by dotmagazine are the author’s own and do not reflect the view of the publisher, eco – Association of the Internet Industry.