The Singular Chancellor
The Merkel Model and Its Limits
As much as the Internet has already changed the world, it is the Web’s next phase that will bring the biggest opportunities, revolutionizing the way we live, work, play, and learn.
That next phase, which some call the Internet of Things and which we call the Internet of Everything, is the intelligent connection of people, processes, data, and things. Although it once seemed like a far-off idea, it is becoming a reality for businesses, governments, and academic institutions worldwide. Today, half the world’s population has access to the Internet; by 2020, two-thirds will be connected. Likewise, some 13.5 billion devices are connected to the Internet today; by 2020, we expect that number to climb to 50 billion. The things that are—and will be—connected aren’t just traditional devices, such as computers, tablets, and phones, but also parking spaces and alarm clocks, railroad tracks, street lights, garbage cans, and components of jet engines.
All of these connections are already generating massive amounts of digital data—and it doubles every two years. New tools will collect and share that data (some 15,000 applications are developed each week!) and, with analytics, that can be turned into information, intelligence, and even wisdom, enabling everyone to make better decisions, be more productive, and have more enriching experiences.
And the value that it will bring will be epic. In fact, the Internet of Everything has the potential to create $19 trillion in value over the next decade. For the global private sector, this equates to a 21 percent potential aggregate increase in corporate profits—or $14.4 trillion. The global public sector will benefit as well, using the Internet of Everything as a vehicle for the digitization of cities and countries. This will improve efficiency and cut costs, resulting in as much as $4.6 trillion of total value. Beyond that, it will help (and already is helping) address some of the world’s most vexing challenges: aging and growing populations rapidly moving to urban centers; growing demand for increasingly limited natural resources; and massive rebalancing in economic growth between briskly growing emerging market countries and slowing developed countries.
More than half of the world’s population now lives in or near a major urban area, and the move toward ever-greater urbanization shows no signs of slowing. According to the United Nations, the global population is expected to grow from seven billion today to 9.3 billion by 2050, and the world’s cities will have to accommodate about 70 percent more residents.
The traditional ways of dealing with the influx—simply adding more physical infrastructure—won’t work, given limited resources and space. New ways of incorporating technology will be required to provide urban services, whether it’s roads, water, electricity, gas, work spaces, schools, or healthcare. In the future, there will be less emphasis on physical connections and more on access to virtual connections.
Cities also face budgetary challenges, battling rising costs and shrinking resources. The world’s cities account for 70 percent of greenhouse-gas emissions, and according to UN-HABITAT, energy-related costs are one of the biggest municipal budget items. Technology could provide a simple fix just by updating aging street lighting systems. That would also improve citizen safety and create a more favorable environment for business investments.
There are similar issues in many of the world’s water systems, with aging pipes in desperate need of replacing. For instance, the United States’ water infrastructure is near the end of its lifecycle with approximately 240,000 water main breaks each year. The cost of fixing this crumbling infrastructure could exceed $1 trillion over the next 25 years, assuming that all pipes are replaced. By placing networked sensors in water mains and underground pipe systems as they are repaired and replaced, cities could more effectively monitor and better anticipate future leaks and other potential problems as the infrastructure is upgraded.
More people also means more waste. The amount of municipal solid waste generated around the world is expected to reach 2.2 billion tons by 2025—up from 1.3 billion in 2012. Globally, solid waste management costs will rise to about $375.5 billion by 2025, according to predictions by the World Bank. Once again, the Internet of Everything offers ways to better manage and reduce these costs. For example, sensors in residential and commercial garbage containers could alert a city waste management system when they are full. Each morning, the drivers would receive their optimized route to empty the full containers. Compared to today’s fixed-route system, the new system could save millions of dollars by increasing efficiencies and worker productivity.
The intelligent and efficient stewardship of growing cities must take top priority. And there, we are convinced that the Internet of Everything will bring one of the most significant technology transitions since the birth of the Internet. Connections between things and people, supported by networked processes, will enable everyone to turn data into actionable information that can be used to do things that weren’t possible before, or to do them better. We can more quickly discover patterns and trends; we can predict and prepare for anything from bus or assembly line breakdowns to natural disasters and quick surges in product demand.
Perhaps surprisingly, the public sector has been the most effective and innovative early adopter when it comes to making use of the Internet of Everything, especially in major metropolitan areas. New and innovative solutions are already transforming green fields and rundown urban centers into what we call Smart + Connected Communities, or Smart Cities. According to IHS Technology, the total number of Smart Cities will quadruple from 21 to 88 between 2013 and 2025. At Cisco, we are engaged with more than 100 cities in different stages of Smart City development.
By definition, Smart Cities are those that integrate information communications technology across three or more functional areas. More simply put, a Smart City is one that combines traditional infrastructure (roads, buildings, and so on) with technology to enrich the lives of its citizens. Creative platforms and killer apps have helped reduce traffic, parking congestion, pollution, energy consumption, and crime. They have also generated revenue and reduced costs for city residents and visitors.
For instance, one-third of the world’s streetlights use technology from the 1960s. Cities that update aging systems with networked motion-detection lights save administrative and management time as well as electricity and costs—as much as 70–80 percent, according to an independent, global trial of LED technology. By using such energy-saving technologies, cities can drastically lower their municipal expenditures on electricity. Cisco estimates that smart street lighting initiatives can also reduce area crime by seven percent because of better visibility and more content citizenry. Further, connected light poles can serve as wireless networking access points, enabling citizens and city managers to take advantage of pervasive connectivity. And networked sensors incorporated into utility lines could help reduce costs for both consumers and providers, with meters being “read” remotely, and much more accurately. Cities such as Nice, France are already implementing smart lighting, which monitors lamp intensity and traffic sensors to reduce car theft, assaults, and even home burglary. These lighting initiatives are also expected to reduce the city’s energy bill by more than $8 million.
Smart Cities are also saving energy indoors. Buildings outfitted with intelligent sensors and networked management systems can collect and analyze energy-use data. Such technologies have the potential to reduce energy consumption and cut costs by $100 billion globally over the next decade.
Thanks to higher traffic, cities generate more than 67 percent of greenhouse gases released into our atmosphere. Experts predict that this figure will rise to 74 percent by 2030. In the United States alone, traffic congestion costs $121 billion a year in wasted time and fuel. Incredibly, drivers looking for a parking space cause 30 percent of urban congestion, not to mention pollution. To overcome this problem, the city of San Carlos, California has embedded networked sensors into parking spaces that relay to drivers real-time information about—and directions to—available spots. This program has helped reduce congestion, pollution, and fuel consumption. Moreover, parking fees can be dynamically adjusted for peak times, which generates more revenue for cities.
Cities can also integrate sensors that collect and share real-time data about public transportation systems to improve traffic flow and better monitor the use of buses and trains, giving them the ability to adjust route times and frequency of stops based on changing needs. This alone will cut costs and bring new efficiencies. Mobile apps that aggregate the information, meanwhile, can help citizens track delays or check pick-up times for a more seamless commute. Barcelona, Spain has already changed the typical experience of waiting for a bus by deploying smart bus stops, where citizens can use touchscreen monitors to view up-to-date bus schedules, maps, locations for borrowing city-owned bikes, and local businesses and entertainment.
Innovative municipal leaders understand the Internet of Everything’s incredible promise. In fact, these days, the most innovative cities have their own chief information officers or even chief digital officers.
There are a number of iconic examples of cities that have put the Internet of Everything into use. They range from the ancient—Barcelona, Spain—to the new—Songdo, South Korea.
Barcelona, which, with a population of about 1.6 million people, is Spain’s second largest city, has embraced the Internet of Everything and is reaping the rewards—approximately $3.6 billion in value over the next decade. About $1 billion of this will come from productivity improvements. Other gains are from reductions in operational, resource, and environmental costs. Still more comes via revenues from new businesses focused on innovation.
City leaders have incorporated connected technology into the mayor’s office and the city council, not to mention the water management, waste management, parking, and public-transportation systems. These technologies have contributed significantly to Barcelona’s profitability (it is one of the few cities in Europe that is running a budget surplus) and have improved the quality of life of its citizens. For example, the city has deployed free Wi-Fi and created a rich assortment of citizen and government apps. Barcelona is also using the Internet of Everything to improve the city’s water-management system (generating $58 million in savings annually), install smart street lighting ($47 million), and embed sensors in parking spaces to let drivers know where open spaces exist ($67 million).
It’s no wonder, then, that in early March, the European Union named Barcelona Europe’s most innovative city. The same month, Fortune also recognized the city’s mayor, Xavier Trias, as one of the world’s 50 “Greatest Leaders.” The publication wrote, “Barcelona has its Mediterranean port, its Gaudí treasures, and since 2011, a mayor who is busy transforming the cultural gem of Spain’s Catalonia region into the smartest ‘smart city’ on the planet. Partnerships with companies like Cisco and Microsoft are fueling development, a new tech-campus hub is in the works, and he’s connecting citizens to government services through mobile technology.”
On the other side of the globe, Songdo, South Korea, is the world’s first truly green field city developed from the ground up with sustainability metrics—economic, social, and environmental—in mind. Through the city’s network, citizens can access a host of urban services—healthcare, government, transportation, utilities, safety and security, healthcare, and education—from the convenience of their living rooms or within a 12-minute walk. Real-time traffic information helps them plan their commutes. Remote healthcare services and information reduce expenses and travel time. Remotely automated building security improves safety and lowers costs.
Through a unique public–private partnership, the city is evolving as a living lab for urban management and service delivery. It can serve as a model for other communities built from the ground up. The aim is not only to develop urban services that enhance citizens’ daily lives and reduce the city’s resource footprint, but also to deliver economic value to the city by attracting new citizens and companies. These initiatives have the potential to create true economic value over the next 15 years, including as many as 300,000 jobs and $26.4 billion in gross regional domestic product (GRDP) growth. What’s more, Booz Allen & Company has estimated that the city will be able to reduce carbon dioxide emissions by up to 4.5 million tons.
How can the world make Barcelona and Songdo the norm rather than the exception?
First, it is important to establish a process for prioritizing potential Internet of Everything initiatives based on the problems that need to be addressed. Articulating the real benefits of such programs and then gathering metrics on those initiatives once they are launched can generate support for the programs internally and with the public. City leaders should also consider starting with replicable initiatives that have worked well in other similar jurisdictions, such as smart parking and other transportation-based projects. Transportation officials often have the requisite budgets and authority to launch scalable pilot projects, and metrics of success are relatively easy to develop and communicate to stakeholders.
Second, the world must rethink IT investments. This means moving away from purchasing isolated services and instead focusing on end-to-end solutions that are integrated across disparate or siloed systems. By adapting to a technology infrastructure that is application-friendly and can be automated, as well as putting in place an expansive network that can handle a multitude of devices and sensors, cities and countries can reduce costs by billions of dollars. Integrating connected technology across systems, including water and waste management, municipal processes, smart buildings, energy systems, and so on, will allow for the biggest impact.
Third, governments should start looking at IT as a value creator rather than a cost center. Indeed, IT enables governments to carry out their overall strategies and will allow cities to thrive over the long term. In many instances, measurable returns on IT investment can be realized within a few years or less. With new connections, governments and their agencies can improve employee productivity, attracts talent and jobs, generate new revenue (without raising taxes), and also create quantifiable benefits for citizens. The Internet of Everything offers $4.6 trillion in value in the public sector alone. That number speaks for itself.
Fourth, the world can’t be afraid of embracing technology in new ways. This means rethinking the contract with citizens and the services IT firms and governments provide them. As the Internet of Everything evolves, the technology industry must also continuously improve security and privacy measures throughout the end-to-end value chain. We believe that industry self-regulation adhering to the highest international standards can be effective in protecting privacy and security. Such security regimes can be strengthened by innovative tools that provide users with the choice to opt in or out of programs and that help users understand how their data are collected and used.
Fifth, Smart Cities require cooperation between public and private partners. Such collaboration helps defray costs, solve pressing problems, and increase benefits for government, citizens, and industries. We have found that Smart Cities require five things: innovative and bold city leadership championing clear programs and outcomes across departments; hyper collaborative partnerships between the public and private sectors; information communications technology master plans and workshops to define and develop holistic and specific projects; and adherence to deadlines—perhaps one of the most important priorities. When the risks and rewards from projects are shared among partners, such as government leaders, private citizens, investors and technology companies, issues are more likely to be resolved and projects are more likely to be completed, because all parties have a stake in their investments. These partnerships are key to managing and financing projects that require advanced infrastructure and technology architecture.
Finally, start piloting now. City leaders have already shown that Internet of Everything solutions can solve difficult problems and improve the lives of citizens. And these leaders are enthusiastic about its potential to do even more. In Cisco surveys, they cited the importance of using pilots to obtain stakeholder sponsorship, prove the business case, and get the technology right. Pilots should be scalable and have clear metrics of success. Perseverance in the face of technical and political challenges can be the difference between success and failure.
This year signals a major inflection point for the Internet of Everything, which will have a much bigger impact on the world and its cities than the Internet did in its first 20 years. The Internet of Everything is already revolutionizing the way our cities operate, creating a more dynamic global economy and also bringing new, richer experiences to citizens. Soon, we will live in a world where everything—and everyone—can be connected to everything else. Streets will be safer, homes will be smarter, citizens will be healthier and better educated. The Internet of Everything will change how we work—more information, better decisions, more agile supply chains, more responsive manufacturing, and increased economic value. The foundation of the city of the future will be the Internet of Everything, and those embracing this technology are leading the way.