Pragmatic but exciting view of the Smart world major players have their say Executive summary
Introduction The new market changes the rules NThere will to be a boom. Development will be gradual Is optimization really the driver of this new business? Information is one of the cornerstones of the new business models The various players continue to make room for themselves Regulations should encourage innovation 3 4 6 8 10 12 16 For years efforts have been made in all kinds of fields (Smart Cities, Smart Energy, Smart Automotive, Smart Home, etc, ) aiming to turn the Smart dream into reality. However, no really significant advances have been made, much less exponential, contrary to what we were told. Sometimes we find approaches that are too biased towards technology, or focused strictly on enhancing efficiency. These perspectives can cloud the true value of the Smart world: the enhancement of that information and its inherent resilience a cornerstone for the generation of new business. Although virtually all analysts predict strong growth in the near future, the attempt to shed some light and judgment on the unknowns resulted in a complementary exercise of collective intelligence. The report, based on interviews with leading figures in the Smart, world, both in Europe and in Latin America, reflects their views which in many cases may not align each other, but they aim to enrich the exercise. Index Introduction 2 3
There is some consensus in the market on the extreme difficulty of a single player gaining a foothold as single supplier, for various reasons: heterogeneity of chain elements, difficulty of capturing multiple vertical perspectives, new portfolio of services other from the traditional, etc. so establishing partnership models is key. It is essential to work with open, collaborative models. In general this is quite difficult, but in Spain especially so, due to the general aversion to partnerships To achieve this goal, it will be essential to create stable relationship models, which should be based, inter alia, on: Complementary capabilities, minimizing isolated investments. We must change the way we understand collaboration, even between different public sector organizations, and not just public-private partnerships. The political and administrative environment as a whole is a barrier. It is sad to see projects not moving forward because different government agencies refuse to collaborate Sharing market strategies and ensuring the alignment targets of the companies involved. Having real win-win models aligned with the value contributed to the relationship. Market leader SThe truth of the matter is that relationships between public bodies, private organizations, or public-private partnerships are not quite all that fruitful A significant portion of respondents believe that there is no entrenched partnership culture, and players are reluctant to openly share their resources and capabilities. The problem is that companies do not want to share their product, infrastructure or solution so as not to lose their competitive advantage In any case, the difficulties to extend actors positioning, both due to the complexity of the ecosystem and the investment limitations to tackle new challenges out of the scope of traditional business, reveal that this is the only way forward for the development of Smart ecosystems. The challenge of cooperation can be solved by starting with very practical questions and by each of the partners contributing their own specialization and skills. It is important to be humble and not always try to be the prime contractor Given the resource constraints of Public Bodies when it comes to offering new services, greater exchange and sharing of assets between administrations will be required, as well as new models for relationship between service providers: Strengthen partnerships based on service level agreements. An important lever will be to develop Smart solutions to improve service delivery and control. Generate PPP truly effective (Public Private Participation), for which management has to be sped up and relationship models have to be streamlined versus traditional bidding. Contractual frameworks in public administration, such as PPPs, are insufficiently developed. New models of public private partnerships must be enabled Smart Solutions Provider The relevant stakeholders must have a common vision, a common understanding Industrial Sector Company In terms of telecom operators, the possibility for them to sign agreements between themselves, nationally and internationally and at different levels of service for its universalization, will provide significant leverage for developing Smart ecosystems. These new relationship models, where more than two parties may be involved, requires much more imaginative and flexible economic and revenue sharing models that those existing to date. The new market changes the rules 4 5
Forecasts to date on high growth rates in this market have not been fulfilled and there is no solid evidence to support exponential growth forecasts in the coming years. Even so, data shows that even in environments where we are seeing a slowdown or contraction in the number of mobile lines M2M lines are increasing steadily, exceeding 20% annually in major world markets. Millions of Connections 300 250 200 150 100 50 Global trends for M2M mobile number lines Some evidence points to a genuine interest in the Smart world, and strong commitments are being made to fuel its growth: Business advances in the Smart ecosystem, where buying and selling is taking place improve competitive position, and the number of large companies involved and interested in this new profitable business continues to grow. The need to optimize scarce resources is driving private companies and public authorities in the search for solutions, both for financial and environmental reasons. Government involvement is leading to initiatives that are driving the market harmonization and revitalization through the creation of consortia and public-private commissions. Collaboration between private entities, in order to jointly develop the market. Workgroups, organizations, forums, etc. continue being formed, showing the great interest that exists in the market. Finally it can be concluded that Smart ecosystems will see gradual growth, due to the need for progressive growth in each of the sectors involved in aspects such as regulations, market demand, technologies, etc. We expect that in upcoming years the adoption process of Smart solutions in B2B market, will continue, leaving B2C overcrowding in a second maturity stage. 0 2010 2011 2012 2013 2014 2015 Source: Berg Insight, The Global Wireless M2M market Beyond the growth rate debate, there seems to be certain unanimity in that this new market makes sense and will remain a reality in the coming years. State-provided services such as health and education, heavily rely on the legislation of each country and change in these areas will be more gradual Public Administrations There will to be a boom. Development will be gradual The Smart solutions market may stumble, explode or grow progressively, but what is clear is that it is here to stay Smart Solutions Provider There will to be a boom. Development will be gradual 6 7
The great concern with optimizing production processes in all sectors mainly for reasons of competitiveness in an economic crisis has increased market interest in Smart solutions. Although in a first phase, these solutions rely on an optimization driver, overall we consider that they will progressively turn towards services focused on new revenue generation. That moment will mark the solutions will begin to accumulate, which until then will be much more restricted in use. There is a geographic bias in this area. While European participants are taking first steps, Latin American players indicate that there is still much work to be done to advance optimization and the increase in value is seen a far way off, as the main driver for creating Smart solutions. Every time you have to be efficient and common processes, processes that can be performed giving benefits 1 We re living in the decade of the efficiency Utilities Industry Company Why? The crisis will require more efficiency It provides us with efficiency. Introduced in processes to minimize losses and streamline billing Efficiency above all Utilities Industry Company Utilities Industry Expert The benefits would mainly be in efficiency savings Above all it will need to be efficient, not just a cost saving. The key driver is to be Smart M2M Solutions Provider There are all kinds of ideas, but the boom will be driven by new revenue, not efficiency. Although efficiency is the first step. 2 Health Industry Company Currently the solutions are geared towards efficiency. However, new services are being worked on The solutions will aim to obtain more things: new services rather than just efficiency Telecommunications Operator Market leader Looking for both efficiency (80%) and new models (20%) Models geared towards efficiency are already under way. They are already sufficiently optimized and the business case is not so expensive Public Administrations In times of crisis that s when you have to obtain income from any source Is optimization really the driver of this new business? 8 9
In an environment where business models are still unclear, where there may be large imbalances in the sharing of profits generated, and where each stakeholder aims to define his own story and be an important part of the chain, information can act as a great driving force and catalyst for the Smart promise. It seems that having a lot of information is paramount, but there is no clarity about what will be done with it There are X players, and each discovers or asks for what they need. There seems to be a need for a catalog of existing information Public Administration It is essential to increase the value of data being generated, for which we must collect and correlate various measures to cross-reference and draw conclusions The data generated are not just one more piece in the Smart Environments larger picture. They are one of the cornerstones that may help define future business models Smart Solutions provider Ultimately, the most important aspect of Smar ecosystems the basis for their reason for being is the ability to capture, share and give intelligence to information, The necessary infrastructure for collection and processing is simply a means to that end. The wealth of information generated from all kinds of different contexts, market needs and business solutions can and must have a market value that all stakeholders involved directly or indirectly can use to their advantage. The key is to get to know citizens better to provide what they need want and encourage consumption. Within an ethical limit It is absolutely necessary to have access to all possible information. Otherwise we will not be efficient and at this time we cannot allow it Financial Sector Company In this area the government s role as a facilitator of development value solutions is significant. It can use the information available or generated by companies providing services. However, private companies lhave demonstrated more ability when it comes to imaginative revenue and business modeling, based on information obtained, as is the case of Google. The progress which public bodies aim to make in capturing large amount of information is not always well understood by the different stakeholders involved, since the general perception is that there is no clear idea of what it will be used for and there are doubts about what information is actually relevant for making available to the public or other companies. Information is one of the cornerstones of the new business models 10 11
A. Public Administration: not a source of funding, but should be the backbone and catalyst There is a common global vision that lgovernments should not assume responsibility for funding initiatives Smart, something for which private companies must take on the challenge. However, Public Administrations are called upon to be active participants in Smart ecosystems as catalysts and drivers of initiatives. The private sector should be the investor of this boom. It is not feasible for this rapid development to be subsidized by the government. It has to come from the private sector Industrial Sector Company The catalyst for this change should be the public agencies, for their ability to create critical mass with their own needs The public sector is increasingly demanding, but lacks a clear idea. There is still much ignorance of what is desired Industrial sector company The government should provide an environment and climate which helps to create an environment of innovation and development. Not in terms of investments, but rather encouraging development Utilities Industry Company The government, particularly in relation to SmartSpaces, should define clear objectives of aspects to be achieved and create roadmaps with clear initiatives, coordinated and aligned with this objective. Following the completion of the strategic plan aligned with these objectives, it should coordinate the various initiatives defined, at all times seeking to maximize resource sharing. It should avoid initiatives without solid track records and whose sole purpose is getting notoriety, which don t resolve real citizen problems. Otherwise, this could jeopardize the market s belief in the real need for Smart solutions. The focus should be less spectacular but more citizen oriented. Let s not talk about technology but about services that solve problems At least in Spain people seem to care more about image in comparison with the municipality down the road B. Telecommunications operators should capitalize on their relationship with the customer In the vast majority of cases, operators are aware that they won t be successful in the Smart business if they only provide connectivity. They are working on positioning along the value chain through partnerships with other players, since offering end-to-end solution independently does not seem feasible. It is clear that we will go from being a company that cares only about connectivity towards providing services that add value and generate loyalty from connected customers The problem for operators is that they are only seen as connectivity providers However, in this shift towards higher value services, the road will not be easy because the market does not perceive operators as providers of Smart solutions, beyond providing connectivity capabilities. Operators are still far removed. They continue to think in terms minutes, interconnection, roaming, etc. so they won t find it easy to play a role in this world Market leader One of the main difficulties in marketing Smart solutions is market reluctance, mainly large accounts, to relinquish to operators part of core processes, due to the high criticality of the same. The various players continue to make room for themselves 12 13
Large companies will not buy a single provider who is the operator for a core process, but they will do so for other non-core processes. This applies also to SMEs Telcos may be able to do the same if they can capitalize on their relationship with customers Market leader To find a gap in the market, both for mass segments and non-core processes of large companies, loperators have the challenge of adapting their skills to the new role and to capitalize on the existing customer base and their relationship with them. One of the major risks if they fail to climb the value chain is the emergence of new players providing connectivity at lower costs or via alternative technologies, which can make them expendable or minimize their capacity of influence within the value chain. D. Utilities companies face the challenge of converting regulatory constraints into opportunities The high capillarity in this sector, with arrival to the customer s home and the deployment of communication and transportation infrastructure, can make utilities market enablers, They might even be able to generate new relationship models with others in the Smart ecosystem for resource sharing. Since the regulations won t go away, they must be converted into opportunities, such as using distribution networks to deploy communications Utilities industry company In any case the market demands flexible regulation as a way to drive new revenue models. One of the levers on which may act will serve as enabler and generate ecosystems on which third parties can create new value solutions that meet market needs. C. Infrastructure and services companies, the hope for gaining momentum in cities Their high capacity in building relationships, which is common in large services contracts, together with their financial capacity, could make them an important player to boost the market, mainly in the SmartSpace domain. E. Manufacturers of personal devices, the big generators of new market demands Customer-oriented device manufacturers may have an important role in making product lines massively available. They could generate SmartDevices, product lines because they fulfill many of the key skills to develop smart environments, of which the following stand out: their ability to generate new market needs, create collaboration and revenue sharing ecosystems around themselves, focus on customer experience and therefore facilitate adoption. Contractors can be major players. There is a lack of financial capacities which infrastructure and services companies are addressing well Public Administrations The services market is commoditizing and Smart solutions can be a key differentiation element It is essential that the services provided are concerned about the customer experience and make life better for people 14 15
A large segment of respondents has highlighted the criticality of the performance of Public Bodies for them to be a lever and not a hurdle. There is a general demand for proactivity in launching driving measures. The regulator should be the one to put forward certain initiatives in instances where Smart services can be promoted Industrial Sector Company Regulations should not be there to control and fine, but to encourage innovation However, there is some general concern, since certain limitations in regulators are perceived, which they should improve in the coming years: Slowness. Government bodies are usually well behind the market curve, which can actually slow it down or stand in the way of breakthroughs in technology, operational models, etc., which they may have to get rid of depending on final regulations. Stringent market control, especially in strategic sectors such as utilities, with very rigid pricing models, which makes it difficult to monetize the investments needed. There are initiatives but this is a highly regulated industry, and therefore the changes are slow Health Sector Company In Spain there is a regulated tariff regime, which means there is no competition and therefore no investments Utilities Industry Company The regulation should avoid penalizing innovative companies, which might cause them to withdraw from their activities for fear of the consequences of unsatisfactory results in the short term and due to seeing themselves punished for taking risks Regulators are reactive and conservative; they only act when there is a problem Smart Solutions Provider Regulations should encourage innovation 16 17