Smart city projects have CIOs on the hunt for new business models- Valutrics

Beyond the pilot

Jennifer Belissent

Smart city pilot projects provide an opportunity for city CIOs to give the new technology a test drive and pin down the ROI, if one exists at all. And, although CIOs often find they can’t dip into the tax base to pay for these experiments, getting subsidies through grants or agreements with vendors isn’t terribly difficult.

But if the pilot proves to be valuable, city CIOs face a hard question: How do they keep it going? Smart city projects aren’t like the standard services cities provide: Constituents pay to have their garbage picked up once a week, and the city ensures it happens. The quid pro quo of smart city economics is less apparent, at least for now.

“As you go to pick pilot projects that don’t have internal economics, but of course are the right thing to do and are a good thing to do, then you have this business model [quandary]: Who is going to pay for the scale up?” said Ted Smith, former chief innovation officer for Louisville, Ky.

Indeed, according to Smith, aim No. 1 for city CIOs is to figure out how to get the business model solved. “It’s silly to imagine that city governments are going to be financing all of this stuff out of tax coffers,” said Smith, who is now the CEO at Revon Systems Inc., a medical software company.

Belissent agreed: She encouraged CIOs to focus on developing business models that clearly lay out how to fund the project in the long term. One model she’s seen work involves partnerships in which vendors share in the revenue or in the risk when extending smart city projects beyond the pilot phase.

Private-public partnerships are a good way to retool the funding mechanism, according to Smith. The vendor will work with the city to map out a viable business model and even take an active role in keeping the project going. “[Vendors] don’t have unlimited patience for pilots. So they want pilots de-risked in some way,” Smith said. 

Jascha Franklin-Hodge

That doesn’t mean city CIOs should buy what vendors are selling hook, line and sinker. Jascha Franklin-Hodge, CIO for the city of Boston, is all for experimentation. But he maintains a healthy skepticism about vendor relationships precisely because vendors have a lot to lose if things go south — or in a different direction from the model that makes the vendor money.

“It’s very clear from the pitches that we see from the bulk of technology companies that they’re selling what’s on the truck,” he said. Technology, rather than city outcomes, tends to drive the smart city conversation, in his view. Rather than get caught up in excitement (and vendor hype about the technology), Franklin-Hodge is careful to focus first on the challenges his city faces and how smart technology will address those challenges. 

He’s not alone. Barcelona, the poster child for smart city pilots, is also taking a pragmatic approach to scaling out its pilot projects, Belissent said. “They had a smart parking solution where they embedded sensors into the streets at specific intervals. And they said, ‘Look that’s really interesting, but we can’t afford it,’” she said.

Whereas when it came to providing public Wi-Fi, Barcelona formed a revenue-sharing agreement with a provider to offer a basic level of service for free; if users needed more bandwidth to, say, stream a movie, they’d have to upgrade to a higher level of service. “Doing so created an entry point offered by the city, but it also allowed the vendor to recoup some of the cost of the investment to put in the infrastructure,” Belissent said. “It’s a win-win.”