On February 22nd at MWC ZTE CIO Jane Chen delivered a speech on 'Smarter City, Better Life', in which she claimed three innovations made by ZTE in the smart city sector, said ZTE was involved in smart city projects in 140 cities in 40 countries and vowed ZTE would become the global leader in the smart city business.* Although Chen did not give any specific date for this achievement any date beyond 10 years would be rather meaningless and as a minimum it would also be reasonable to assume that if it was going to happen ZTE would within five years be regarded by market watchers as a Top 5 vendor.
This was certainly a surprising and aggressive statement considering that the most recent (Q1/2016) Smart City Vendor Leaderboard ranking by Navigant Research makes no reference to ZTE. It ranks IBM top, followed by Cisco, Microsoft, Siemens, Hitachi, Huawei, SAP, Panasonic, Oracle, Ericsson, GE, Schneider Electric, Silver Spring Networks, Toshiba, Itron and ABB.
The market may be more open than at first appears
On the other hand, there is a degree of volatility in the Navigant rankings over fairly short periods of time which suggest there is as yet not a lot of difference in the level of capability and sales between many of these companies. For instance, the previous Navigant ranking of Top 10 smart city vendors of 2015 listed IBM, Cisco, Schneider Electric, Siemens, Microsoft, Hitachi, Huawei, Ericsson, Toshiba and Oracle. As one can see, SAP was not mentioned in the 2015 list but is now ranked 7th and Panasonic was ranked 8th, while Schneider dropped from 3rd to 12th.
Oriental companies like to set publlc long term targets and often achieve them
Oriental companies are generally quite serious about these sorts of long term targets, they publicise them list them on their websites and managements risk losing face if they do not achieve them, and it is therefore reasonable to assume that a considerable amount of thought was given to this commitment before making, that ZTE believes there is a strong possibility it can achieve it and is prepared to invest over several years at a level sufficient to support that possibility.
Overview of the smart city issue and market
Lack of hard sales numbers by vendors
The smart city concept, in a rather vague form, appears to have originated about five or six years ago and was primarily propagated by IBM and Cisco - two major U.S. IT companies with static or declining sales which have been desperate to find new big fast growing markets where they can take leading or dominating positions. Although both companies have talked a great deal about smart cities and have continued to imply that this is a very big market in which they have plenty of momentum neither appears to have ever identified the level of sales achieved, which implies that as a minimum those numbers are less than the markets might expect them to be, particularly given both companies level of rhetoric on the issue.
As an example of how differently Cisco, at least, has behaved in the past in similar emerging new product cases, it was already releasing quarterly information about the number of UCS customer within 12-15 months of the products launch in 2009 and soon set it up as a separate segment from Ethernet switches and routing. As of Q1 2011 ending October 2010, Cisco was already reporting $126 million sales for its Data Center product. Given no hint that Cisco plans to set up a separate smart city segment it might be reasonable to suppose that Cisco's smart city sales, 5-6 years after it started to talk up the market, are below $126 million a quarter and not obviously growing very fast, otherwise one would be being told about it. Bear in mind that Cisco is listed by Navigant as the world's second most important smart city vendor, yet we are having trouble identifying even a few hundred million dollars worth of annual business for them.
IBM a little more forthcoming on data
IBM has been a little more superficially forthcoming, though in practice not much better than Cisco. At least because of the IBM Smart City Challenge process, in which IBM over several years has provided certain selected cities with a few person weeks of consultancy, together with a report on the state of their city management, there is a list of many of the cities with which IBM has engaged. Moreover, from time to time IBM has provided statistics on the number of its several thousand annual smart city engagements, although it is difficult to tell what they mean. There was a semi-hard figure for the city disaster and management control centre IBM built for the Rio de Janeiro in 2012 following major floods and a disastrous landslide. This control centre, which reportedly cost the city $14 million, has clearly been the pinnacle of achievement for IBM since it is quite often quoted by them and also probably for the global smart city sector as well. At the time it was said there was nothing like it anywhere and as far as we can tell it has never been duplicated. Some observers have suggested the project has been ridiculously over-hyped by the press and is actually nothing more than a very large number of video streams converged in one room. In any case, IBM 's smart city activities are included for reporting purposes within its Smarter Planet business, which also covers telecommunications., natural resources, commerce, financial , railways and other industry, so smart cities seem quite a minor part of that. The impression given is that over time IBM has somewhat backed off the smart city theme as being less productive than many of its other businesses.
While the Smart City Challenge process may continue to be used as a general purpose PR vehicle and low risk way of training new consultancy staff, it seems for many reasons the actual business yield from this process is not very high. Cities like the attention and read the reports but time moves on there are many other urgent priorities and money is short. In a 2013 presentation which showed a world map of IBM's various logistical, and R&D facilities, cloud computing installations and centres of expertise for different markets numbering 70 in all, only 3 (in Singapore, Mexico and Russia) were concerned with smart city developments. In October 2015 IBM further backed off the 'smart' themes it had been running its newer businesses on and announced a re-branding towards a theme it calls Cognitive Business, focused on cloud-computing ($10.2 billion in 2015) and business analytics ($17.9 billion).
Definition of a smart city
Considering the torrent of writing and discussion of the smart city theme over the last few years one might have expected some form of consensus to have emerged as to what is meant by the term, but on the contrary the confusion seems to have worsened. There appear to be at least four currents of thought on the subject, firstly the beauty contest, after the smart city idea emerged it morphed and in one variant was appropriated by the global tourist industry. Dozens of cities (particularly in Europe) lined up to claim that they were among the world's smartest cities when all that was meant was that they had lots of green spaces, old buildings and museums and a rich abundance of cafes and restaurants (reference cities Vienna and Amsterdam)..
Second is the tight definition, an IT-oriented definition used by Navigant, with which OND broadly agrees, which depends on the concept of a highly integrated city management system which measures its operational inputs and outputs very accurately and continuously and makes multiple real time uses of the resultant databases to manage the city's day to day life efficiently This it has to be said is a very tough idealised definition against which even the nicest cities in the world score quite low marks.
Third is the broad definition, covering almost any spending on modern technology and electronic systems. fourth is the Indian definition, as the current Indian government under Narendra Modi is showing signs of shaking off its sleazy politics, corrupt public structures and corrosively anti-business stance the issue of smart cities has been cleverly picked on by Modi as a theme, both for the regeneration of the country but also for attracting foreign aid and investment. Whilst the program's definition of what is meant by a smart city is a serious and honourable one it is barely concerned with the IT issue at all and is almost totally focused on core issues such as sanitation, access to clean water, continuous electric power and efficient transportation. This is obviously because features of everyday living taken for granted in developed societies are in short supply there and IT is very much a secondary issue.
Wide gap in estimates for smart city market
Put very simply, Navigant Research is currently estimating the value of the smart city market in 2016 to be about $12.1 billion, and says this could rise to $27.5 billion annually by 2023. By comparison, with the hype and many other sectors, this is actually quite a small business opportunity particularly when you consider the large number of vendors interested in the business. Moreover, the proposed CAGR of just over 12% is nice to have but not huge. At the other end of the scale companies like Frost and Sullivan in late November 2014 were forecasting the global smart cities market to reach US$1.56 trillion by 2020, which would be around 1.73% of a global GDP. Clearly this is a complete nonsense, indeed probably bigger than the complete city budgets of the whole world by that time.
* Chen described these as the Cloud-Network-Map top-level architecture, the shared city big data cloud platform, and the innovative business model and city cooperation in a new PPP mode.