City-As-A-Service: Last Chance For Utilities To Avoid Irrelevance.
Like veins that form the network transporting blood through our bodies, roads and electric lines transport energy and resources through cities. As people and companies indicate their desire to move from point A to point B, as cheaply and quickly as possible, city systems evolve to become more efficient thanks to continuous feedback mechanisms. However, communities still must utilize resources within the constraints of availability.
Two laws in the realms of systems and networking can help us understand where people are ‘going’ and provide a framework for understanding, and even predicting, how customers in cities will adopt the new products and technologies they are bombarded with.
Geoffrey West’s Law of Urban Scaling suggests, “that essential properties of cities in terms of their infrastructure and socio-economics are functions of their population size in a way that is scale invariant and that these scale transformations are common to all urban systems.” In simple terms; cities follow a predictive model based on population size, and as a city grows it benefits from economies of scale. For example, the bigger the city, the fewer the number of gas stations needed on a per capita basis. A gas station in a larger city serves more people and sells more fuel/month on average than in a smaller city. With each doubling of population size, a city needs 85% more gas stations, instead of double the number. This economy of city scale applies in every city and country in the world. The interconnectedness among all elements that comprise a city make it a complex adaptive system — a network — bringing us to the second law.
Metcalfe’s Law states that a network’s impact is the square of the number of nodes in the network. If a network has 10 nodes, its inherent value is 100 (10*10), suggesting that as the amount of people and networked infrastructure grows in a city, the value the city derives from them grows exponentially. But only if the links between the nodes are present.
What ideas can we draw from studying these laws and the cultural changes that influence them? What does it mean for a utility as more and more people move into urban areas that are increasingly connected technologically? We can take a cue from forward-thinking companies that are taking a post-demographic approach to marketing:
Innovative real estate firms are targeting profiles that cut across traditional demographics and are instead focusing on dwellers more alike in social markers..
Netflix focuses on ‘taste profiles,’ another segmentation that ignores demographics and borrows from shared behaviors to determine what movies or TV shows to commission.
These two examples bring us right into the customer home, the smallest and most personal of city units. Our homes are the last bastion against the world and the city. We want to control what happens inside, but we still make decisions based on the outside signals we receive from our cities. ‘Who will my neighbors be?’ or ‘Is this a good school zone for my kids?’
Smart cities (I know. I'm also tired of the phrase) can ultimately provide the signals that customers truly need about what they allow in their home, offering utilities an enormous opportunity. Even as tech companies capture the three current connected home use cases (safety, security and convenience), utilities can take the lead on providing the signals from the city to residents in their homes. But utilities must take a fresh, post-demographic look at the customer and take a system view of cities and the role they can play in shaping them (Urban Scaling and Metcalfe’s Laws).
Utilities Owning Departments of Transportation
Having lost the battle for the smart home, utilities can capture the opportunities provided by smart cities and own the signals that customers get about what should matter.
As mentioned above, transport systems are part of the complex network of utilities that ensure the movement of energy, people and resources within every city. The most desirable cities have just the correct mix of private and public options for (mostly) efficient movement of people and products between points A & B at optimal costs. Public transportation provided more than 10 billion unlinked passenger trips for more than 50 billion passenger miles for the ninth consecutive year in 2014 (the most recent data provided by the American Public Transportation Authority).
Utilities that are strategically focused on winning customers’ hearts by expanding the services they provide could look to transportation systems as a way to build deeper connections with the customer. Regardless of how bad any individual system is in a city, public transportation is often at the core of decisions about where to live. Public transportation systems provide the most salient signals to residents of a city, rich and poor alike.
Different populations have different needs of their city’s transport systems. Suburban families might come into the city for weekend fun or weekday work using public transportation. City dwellers choosing not to buy cars would rely solely on public transportation to navigate their cities. Residents commuting to second or third jobs are absolutely dependent on timely public transportation system. All these customers pay to ride public transport systems. For a utility looking to embed itself in the lives of a customer, even tap into customer engagement, taking over the Department of Transportation (DoT) is not a crazy idea. It is a remarkable opportunity to advance customer engagement and create a new revenue model. Considering the current atmosphere of reduced city, state, and local government capacity to fund these systems adequately, there is probably more willingness at this time to divest of these systems than at any other time.
Taking over a DoT or regional transportation network would fit in line with the regulated utility business model of collecting rent on assets managed, and Cost of Service Regulation (COSR). Utilizing DoT vehicles as assets for the grid increases the number of assets collecting rent, possibly reducing cost of service for public transport. The operations and management of the people, the fleet of cars/vehicles, and the building infrastructure for effectively running a transport system match the current utility structure of people, fleet of assets, and infrastructure required to generate, transmit, and deliver electricity. Penn Station in New York, South Station in Boston, Union Stations in DC/LA/Chicago/Denver are microgrids waiting to be upgraded and form the heart and soul of some of these cities with tens of thousands of commuters daily. While there is a distributed energy element to managing the assets (moving trains, etc) the utility industry, with our ability to maintain 99% uptime, has mastered the art of charging rent on the usage of those assets and keeping them going.
Another advantage is the ability to obtain even more holistic data on how the city runs and how people move about. Since the 1970’s, public transportation ridership has shown a steady increase in growth. Imagine owning the platform that knows where people are and aren’t. Imagine truly understanding the energy usage reductions that will occur as a result of reduced occupancy due to the ebbs and flows of people from downtown to the suburb after work, or the opposite flow of people, and the socioeconomic consequences, in cities like Toronto or Sydney. Imagine combining these ‘big data’ sets with the current smart meter and distribution system data that the utility has with selling anonymized data to private transportation companies or real estate firms. Most utilities complain about the dearth of true business models for the energy usage data the industry has, but we can get creative by looking beyond just the current silos of data.
Probably The Last Chance To Avoid Being Disrupted
With the advent of electric and autonomous vehicles, transportation is one of, if not, the final industries to embrace electrification. The utility industry is uniquely positioned to add the technological innovation necessary to operationalize at a city scale and position themselves as the essential service provider for the customer. Think of it as ‘City As A Service’. Perhaps what makes this out-of-the-box idea most intriguing for urban and public policy planners is the option for the privatization of Departments of Transportation or to maintain them as public entities, depending on the regulatory and management structure of individual utilities. This variety will create a laboratory of experimentation for city, utility, and transportation leaders around the world, which will the promote innovation, harmonization of systems, and optimization of service delivery for customers.
https://www.linkedin.com/pulse/city-as-a-service-last-chance-utilities-avoid-seyi-fabode/