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Santander and the Future of the Smart City

Investment managers will always tell you that past performance is no guide to future share prices. But history can always teach us lessons. Let me tell you about the future of the smart city by starting with a little story about the history of the internet.

Sinking Capital

13 years ago I was working with a company called Exodus. It was worth 37 billion dollars. It had built or bought a good chunk of the internet: the hardware infrastructure that you and I rarely see, fibre optic cables and data centres around the world.

Twelve months later it was bankrupt and being acquired by Cable and Wireless for $800 million.

A lot of capital had been sunk into Exodus and a number of other, similar companies. They too hit the financial buffers and their assets were broken up and sold off cheap. Together the assets these companies built represent a significant fraction of the internet we use today.

Exodus went bust in part because it built its business plan on forecasts from Gartner Group and other analysts about demand for internet services. Like lots of things in the dotcom bubble, these forecasts were inflated. They were accurate in their scale but not in their timing: demand just didn’t scale fast enough to justify the colossal investment.

In fact demand didn’t really take off until about five years later when YouTube and others came along with services that made maximum use of the new broadband access networks. YouTube and other content companies benefited massively from the capital that had been sunk into rolling out infrastructure. Hence why we now have debates about Net Neutrality.

What’s the relevance of all this to smart cities? The people who spend the money to build the platform aren’t necessarily the ones who benefit from that investment in the long term.

A New Internet Bubble

Scroll to 2013 and the new hype is about smart cities. For me a smart city is defined by four characteristics:

  • Collect: A sensor network to harvest data on environmental and service variables
  • Connect: A communications network to get this data back to a hub
  • Process: The ability to turn this data into information and publish it in useful formats
  • Act: The capability to react to this data to make meaningful change

The reason there’s lots of hype about smart cities is threefold.

Firstly and most nobly, measuring activity and environmental factors, and responding appropriately could mean cutting energy usage and CO2 emissions.

Secondly and somewhat less nobly, public services are under pressure and there’s a belief that data can help to optimise resource use and reduce costs.

Thirdly, and with very little nobility, the big technology vendors and service providers see a new market opening up.

The enthusiasm of companies like IBM and Telefonica for smart cities has fuelled a lot of scepticism about the digitally-driven smart city concept. But it’s a scepticism that I don’t share.

Today this is a position of faith: nobody is sufficiently advanced in these projects to show hard empirical proof of success. But it makes sense to me that if you can monitor lights left on and turn them off, you can save energy. If you only send a truck to empty bins that are full you will save fuel. If you monitor the humidity of soil and only water grass when it needs it, you will save water. As long as the capital and operating costs are in line, I believe there is a return on investment to be had for the city.

Those costs come down to one particular feature of the smart city. Here’s a breakdown of the major components.

Sensors

I flew back last night from two days visiting Santander’s smart city project. This is one of Europe’s and probably the world’s most practical smart cities. They haven’t achieved a huge amount yet in terms of ROI, but they are at least doing real stuff on the ground and testing it, in a project led by Telefonica.

What you can see here is one of the standard sensor units used throughout the city to monitor temperature, noise, humidity, air pollution etc. If you’re a geek you might recognise some of the internals. It’s all off the shelf parts that in total cost a few tens of pounds. The most expensive sensor they use in this project is 130 euros and that one is buried in the ground to detect whether a parking space is full.

The whole 12,000 sensors they have deployed to date have cost less than a million euros. Bear in mind that they were developing these sensors as they went and early prototypes cost twice as much as the final models.

This is not a lot of money to invest.

Connectivity

All of the sensors are linked back to base by a network of aggregators and gateways that ship data via various unlicensed wireless standards, fibre that the city owns or 3G. In total across the whole 12,000 sensors the city is only shipping and storing 5MB of data per day.

Once you have the capital expenditure of the sensor network paid for, the operational cost for this is going to be low. And that million euros above? That included most of the communications hardware.

Processing

At this point in my tour of Santander I was wondering what Telefonica is doing. There is almost no money to be made on hardware or connectivity, the bread and butter of telcos. So why was this enormous, smart global company so interested in this proof of concept project?

The processing. Once you have all this data flowing in you need a platform to turn it into useful information. This is the hard part, and this is where Telefonica and its competitors see the opportunity for revenue.

Telefonica is developing a cloud-based platform under a European initiative called FI-WARE that enables companies to collect, process and visualise all of the data from their sensors. To make the smart city work you are going to need a platform like this.

Actuation

The final piece of the puzzle is owned by the city and its contractors. It’s about what you do with the data. This could be straightforward daily decisions about when to collect a bin or turn on street lights. It could be a third party application. It could mean better planning decisions — ultimately the biggest source of potential savings.

The Future

So, what is the future of the smart city? Here’s the situation I see.

Financial pressure will drive councils to adopt smart city thinking, and they will buy the vision being peddled by the technology companies. Shared procurement Guidelines will help councils to limit their exposure to risk. They will take investment from Europe and central government where they can but most of the capital will come from enterprise. Big integrators and telcos will fund investment as part of multi-year build and operate deals. Service suppliers will be obliged to incorporate smart features in their tenders for waste collection etc.

These providers won’t suffer like the first investors did in the dotcom crash. But they also won’t be the big winners. As appears to be mandated by the EU development funding, open data will be the norm, with common, open standards for data structures. As long as we can avoid fragmentation, this will support a thriving development community building new apps and services on top of the public data.

Though I accept it is a position of faith today, I believe that making cities smart can deliver both financial and environmental benefits to government and citizens. And I believe that if they are properly executed, they could also provide an exciting new platform for third party innovation and development.

Call me a smart city optimist.

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Don’t Listen to Your Futurist

You employ a futurist, right? Someone to watch the trends and warn you of coming changes that might impact your business.

Do you listen to him or her? Or more precisely, do you take action on what they say?

Well don’t. At least don’t act on what they say just yet.

If you have a really good futurist, a good proportion of the trends they forecast will come true. If he or she is lucky, all of them will come true.

What is very unlikely is that all of the trends they predict will come true, in precisely the time frame they suggest. And that there will be no other trends that prove to be just as important.

As a futurist I acknowledge this. I know that outside of a certain, relatively short time window, the predictions I make are subject to many influences. Even if I make a correct prediction (and I wouldn’t make predictions if I wasn’t pretty confident), it is incredibly hard to get the time frame precisely right.

This matters for business. You cannot afford to make massive capital investments, or worse, huge decisions about firing and hiring, based on a trend that proves not to be accurate, or that happens months or years after it was forecast.

Right Place, Wrong Time

I learned this early in my career working with Exodus Communications, one of the first global-scale hosting companies. Exodus built out a world-wide network of data centres and a supporting IP backbone based largely on Gartner’s infamous hockey-stick-shaped curve forecasting internet adoption. Visiting Exodus’s data centres was the first time I saw physical pieces of the Internet.

There was nothing wrong with the shape of the curve. The substance of Gartner’s prediction was right. But the time axis was off by about 10 years.

Exodus invested vast amounts of capital, buying up competitors. Based on the same Gartner forecasts on which it built its business, in 2000 Exodus was valued at $37bn. A year later it folded.

So what should you do?

Futurists add huge value to a business, inspiring innovation, supporting good strategic decisions and keeping you sharp. I wouldn’t be one if I didn’t believe this.

But the best lesson a futurist can teach you is a simple one: change is coming, and you need to be ready for it.

That doesn’t mean transforming your business today on a promise about tomorrow. It means making your business sufficiently agile to respond to change when it comes.

At some point it will become clear which of your futurist’s predictions are coming true. By this time you will need to move quickly to take advantage of them or avert the risks they present. You won’t have the advantage of having moved years before your competitors. But you will be confident in the decisions you are making and you will have the evidence to show your stakeholders that they are the right decisions.

If you have made your business agile, and prepared plans against the trends your futurist suggested, then you will be prepared for change and you will be able to act quickly.

So make your business agile. Listen to your futurist. But don’t act on what he says. Yet.

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The Discovery Problem: Why The Future Needs Stylists

I just signed up to thread.com and had a consultation with a personal stylist. A pretty eminent one too. She asked me some questions about what I wear, and the brands I like, and she looked at some pictures of me (poor woman). Then she recommended some outfits.

The result: I liked most of what she plumped for. In fact I already owned a couple of very similar items. Clearly I have a better sense of style than I thought…

The site already had my sizes. I handed over my credit card details and picked my favourite items. I’ll try them on at home, and if I like them, keep them. The site — and my stylist — take a margin on the transactions.

It’s a very personal service: even mediated via webchat you know you’re dealing with a real person. It feels premium, yet it costs you nothing. But most important are the recommendations.

Amazon has reportedly spent millions of dollars building its recommendation engine — the software that drives the suggested purchases at the bottom of the page. Yet I find I am much more likely to find something I want to buy on a walk around Waterstones.

This is a problem both for the online retailer and the high street.

The online retailer would like to replicate the feel of a premium high street store where an attentive shop assistant helps you find what you want and recommends suitable purchases. Why? Because you will spend more.

Doing this economically usually means automating the recommendations. This is not something computers are necessarily good at — hence why Amazon has spent so much.

The high street has a problem because more and more of us are discovering what we want on the high street and then buying it — usually cheaper — online. So-called ‘showrooming’.

Thread.com has avoided the multi-million-dollar development costs by giving stylists a way to earn a few extra bucks. Work as a stylist — I can believe — is not 9–5, Monday-Friday. It is intermittent: frantic weeks followed by frantic worry. With a few minutes here and there, and an internet connection you can earn some cash just by doing what you do from the comfort of your home, your bed, coffee shop or local bar.

This is a prime example of the sort of secondary income that I believe many of us will need and have in the future. But it is also evidence of the current limitations of personalisation technology and recommendation engines.

One of our long-term goals with CANDDi was to recreate the local shop experience, where the retailer knew you just well enough to create a personal, engaging shopping experience. We can do a lot of great stuff with the software, but we can’t do that — yet.

Even when we can, personal recommendations will retain a premium value. Dealing with a real human being will be something we pay for, either directly or via a margin as with thread.com. High street stores may start to offer virtualised personal shoppers — real people but communicating with us remotely — as a way of providing more support in-store but with a lower cost (and potentially more knowledgeable service) than a body in-store.

Whether they are recommending boots or books, gadgets or grub, human recommendation engines are here to stay.

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Turning Passion Into Profit: Everyone Needs a Bit on the Side

Years ago I was invited back to speak at my school. I’d only been working a couple of years. In the period since I’d left, the head had introduced presentation evenings and it was at one of these that I was asked to speak.

What I talked about was getting a job. I’ve been asked to speak about the same topic a few times since, and my message has barely changed. In fact, I believe the advice I gave back around 2002 will be even more relevant in the future, when there will be very few ‘jobs’ around and people will be increasingly responsible for finding their own income from multiple sources.

The advice I gave was that qualifications aren’t enough. It doesn’t matter if you have GCSEs, A-Levels, a degree or a PhD, none of these will get you a job. Because all they do is put you on a level playing field with thousands of other candidates.

What gets you a job is all the other stuff that you do. Given the choice between two candidates with similar qualifications, I will always choose the one that is a world-class athlete, a published author, or just captain of the local hockey team. It shows they have passion and commitment. It shows that they have drive.

If the future pans out as I expect, with the number of steady 9–5s diminishing in most sectors, lots of us will be looking to turn our passions into profit. We may hold down one or two regular jobs (work is increasingly part-time), but we will likely use our skills and interests as another income stream.

Liam Biggs, the man behind Cazuall.co.uk is a great example of this. I met Liam at IFA this year and got to find out a little about his background. Liam’s passion is gaming, and he has carved out his own niche in that market — first as a professional gamer, then running gaming organisations and teams, and now with his YouTube channel and website. Liam does this alongside a ‘full time’ job. When your hobby is bringing in income, you can usually find time.

Liam’s passion has made him an influencer in the market for games, consoles and accessories, to the point where major companies are sponsoring his website and flew him out to Berlin for the show. This isn’t a position of privilege he was given, it is one he created.

Most of us have a passion or a hobby. Whether it’s style or science fiction, food or football, there’s usually a business angle to our expertise. In the future more and more of us will need to exploit it.

Tom Cheesewright