Smart cities Q&A: “A consumer model with city license could work,” says Digi

Minnesota based Digi supplies routers, gateways and IoT modules for machine connectivity in a variety of applications in the smart city space, including in transit systems, street lights, smart waste bins, smart metering and waste-water systems.

As part of an investigation into the funding models that underpin the smart cities ecosystem, Enterprise IoT Insights caught up with Steve Mazur, the company’s director of government sales, and Scott Nelson, its chief product officer and vice president of product, to get the Digi view on how to buy and sell a smart city.

Here is the interview in full, separately of the long report. The report, titled How to buy / sell a smart city – procurement models to make every city smart, can be found here ; a webinar on the same subject can be found here.

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How easy is it to fund smart city solutions?

Mazur: “The funding can be straightforward, assuming it’s based on normal municipality transportation and infrastructure upgrade cycles of city-owned assets. There are multiple federal grant programs that provide billions of dollars a year for transit and transportation projects, for example.

Mazur – regulatory barriers

“Energy projects, such as LED street light conversion, on the other hand, present more challenges and fewer funding sources. For example, the local electric utility may own the lights which are leased by the city. If owned by the city, funding can come from operating budgets, municipal bonds or third-party lease purchase contracts. Though these avenues will become more difficult for smaller cities.”

Are procurement and scalability the biggest barriers for smart cities now? Is the tech proven?

Mazur: “In addition to procurement and scalability, significant barriers include financial, technical and regulatory aspects.
Regulatory issues can be major barriers in LED street light conversion when established tariffs exist with local utilities. Scalability can also be a barrier, even more so when the technology is relatively new and unproven, such as the case of connected vehicles.

“That being said, there are many smart city systems that are proven and deployed, often taking advantage of very scalable cloud infrastructure.”

How are the smart-city projects Digi is involved funded?

Mazur: “The majority of our smart city projects are funded through traditional municipality methods, such as federal grants, bonds and operating budgets.

“The traditional methods are stable and available to operating divisions that regularly deploy new technologies to improve efficiency and effectiveness. Digi has deployments in every smart city industry sector including energy, water, transportation and buildings.”

How can medium and small towns get smart, ultimately – so it’s not just about megacities?

Mazur: “It appears as though it is becoming more difficult for average towns to obtain financing for smart city projects using traditional methods. In some cases, the cost of bond issuance can be high compared to the bond value, and there may be other local priorities for such public money.

“Federal grants are available; however, there is also the issue of access to consultants with the necessary expertise to help develop effective proposals. In transit, there are recent examples where the Departments of Transportation in various states have established state-wide programs to deploy smart city solutions in metropolitan areas.”

Who owns the data from smart city solutions? Who should own it?

Mazur: “In transit and transportation, the data is owned by the city and made available to the public through APIs. This enables an open market and sustains a third-party application ecosystem to the benefit of all city residents.”

How is this city data being monetized?

Nelson: “The first wave of monetization was in energy, in particular the savings from lighting. Water conservation is another area that is seeing monetization, particularly from the utilities.

Nelson – safety proposition

“The phase within which we are presently living and which is expected to grow in the coming years appears to be more about time management: vehicles, mass transit, people moving in general.

“There is also a safety proposition being discussed that incudes lighting, security, traffic safety, and more effective law enforcement via the reliable distribution of real time data over networks such as FirstNet.”

Does the technology industry need to find a new way to sell to cities?

Nelson: “While this may not be new, it is different from most commercial markets. The purchasing authorities are centralized, and they tend to spend money in a capital expenditure (cap-ex) model, rather than as operational expenditure (op-ex), as most commercial enterprises prefer.

“It’s possible some entities are able to sell in a ’you-save, you-pay’ model where the selling entity is paid a percentage of savings. This too is not new and has risks when the selling entity is not entirely in control.

“An interesting consideration would be if city governments allowed certain entities to install infrastructure and the charge for use via consumer models like toll roads. While this doesn’t yet exist, it’s not hard to imagine IoT-based solutions that could be easy enough to deploy and valuable enough to consumers that a consumer model with city license could work.”

Do cities need to re-define their needs, and how they want to buy smart cities?

Nelson: “If they want to take full advantage of IoT technology they will. IoT is inherently distributed and cooperative. City governments are neither in terms of their governance and management.”

How might cities buy city-wide smart technology in the future?

Nelson: “We could see more of a marketplace model wherein licenses to set up and sell data are granted so that companies can collaborate and innovate with the data that is gathered to create value for citizens as they are uncovered and develop. An example is the SalesForce marketplace and the Apple App Store models.”

This is the full version of an interview that contributes, in part, to a wider Enterprise IoT Insights narrative on smart cities funding models, titled How to buy / sell a smart city – procurement models to make every city smart. Read the report here, and the webinar here. Sign up to the Enterprise IoT Insights newsletter here.