NEW BUSINESS MODELS (REVENUE STREAMS)
The digital economy allows for other business models than the traditional one where consumers buy a product and ownership of the product is exchanged in return for payment. The four most common business models in the digital world are:
- Advertising based – Provide content or services for free in exchange for viewing advertisements (often customized to the personal profiles). Revenue streams are generated by advertisers and not by users. Parties that choose for this business model often focus on building a large user community before they start monetizing the captive user base through advertising. A typical example is Facebook.
- Subscription (all you can eat) – Users pay a fixed amount per month in return for the right to consume digital content and services without limitation. A typical example is Spotify and Netflix.
- Pay-per-use – Users consume digital content or services and pay a fee per consumed item. Typical examples are in gaming and on-demand video.
- Data monetization – Digital businesses collect a plethora of data on consumer behaviour and preferences and product usage. This data has value and can be monetized by selling raw data or derived insights to other players in the market.LOWER TRANSACTION COSTSThe use of digital technology to support B2C transactions dramatically decreased costs of doing business (e.g. order capturing, invoicing, payment). By digitizing and automating each step in the transaction, it became economically viable for businesses to handle large amounts of relatively small transactions.
LOWER COORDINATION COSTS
Powerful personal computing, improved communications, information management and collaboration software has significantly lowered the costs of organizing and coordinating complex activities in an organizational and geographically dispersed situation. As a result, business is able to mobilize their experts on a global level to work together on frim projects. HIGHER PRODUCTIVITY AND ASSET UTILIZATIONThe use of digital technology, e.g. by replacing manual work by computers, costs decrease and productivity increase. Furthermore, techniques like data analysis can be used to make smarter decisions and increase asset utilization, which also decreases cost.
WHAT DO WE MEAN WITH ‘SMART CITIES’?
A city is smart when investments in (i) human and social capital, (ii) traditional infrastructure and (iii) disruptive technologies fuel sustainable economic growth and high quality of life, with a wise management of natural resources, through participatory governance.THE CHALLENGEDisruption of the labour market is a major concern. Due to disruptive technologies, many existing jobs will disappear with (frictional) unemployment as a result. Many people will have to be retrained in 21st-century skills more quickly to remain employable. New jobs will have to replace vanishing old jobs. The challenge for the city is to make this transition as smooth as possible by renewing fast and making the turn rapidly. A city which does not make the turn fast enough will be confronted with an increasing number of long-term unemployed, leaving no money for addressing social challenges.RESEARCHResearchers of the University of Oxford have analysed the impact of computerization on 700 jobs. For each job, the researchers estimated the change of that job being fully computerized in the next 10 to 20 years. The results were clear: 47% of total employment has a high probability of disappearing due to computerization. Many of those jobs are in the categories Office and administrative support, Sales and Service.
THE IMPACTThe disruption of the labour market is going to happen and brings two major challenges:
• Unemployment – The pace at which automation and robotics impact the labour market increases. As a result, the pace at which existing jobs disappear and people become unemployed also increases. If people do not adapt their skills to the changing environment, large structural unemployment will be the result.
• Income inequality – The benefits of computerization of human labour will be reaped by owners of companies, building, machines and computers who will see higher productivity. Human labour becomes a less important factor, due to which the pressure to increase wages decreases. As a result, inequalities between people are likely to increase if no compensating measures will be taken.
BOTTLENECKS TO COMPUTERIZATION
The extent to which occupation is at risk to be computerized is determined by the Oxford University researchers by scoring occupations on the most important bottlenecks for computerization. Occupations that score low on these bottlenecks have a high risk of being computerized.WINNING THE WAR ON TALENT IS A CHALLENGE CLOSELY LINKED TO THE DISRUPTION OF THE LABOUR MARKET, BUT RELATED TO THE OTHER SIDE OF THE ‘DEMAND/SUPPLY’THE CHALLENGE Smart City can only exist when it is able to attract and retain high-tech and creative talent. These people are vital for continuous renewal of the economic infrastructure through creative destruction and innovation. They are the foundation for new initiatives, start-ups and a climate in which innovation can flourish. As traditional jobs disappear, talent is required to be the catalyst in a process that creates new businesses and new jobs. The megacities of the word are therefore competing for this talent.
HOW TO WINThe following ingredients stimulates attractiveness for talent:
An urban 24*7 lifestyle that fits the needs of young professionals to live, work and relax. The spatial planning of a city must be aimed at creating the right conditions. Furthermore, cultural diversity is positively correlated with such a climate.
Presence of reputable knowledge institutions and research that is able to attract scientific talent.
Presence of an innovative financial sector provides access to capital in all its forms (classic business banks, venture capitalists, crowdfunding etc.).
Stimulation of start-ups, for example in the form of incubators where entrepreneurs can rent space in a stimulating environment with other start-ups. This creates a climate where ideas can be exchanged, problems can be solved collaboratively and innovation is stimulated. SECURING THAT THE BENEFITS OF SMART CITIES ARE REAPED BY ALL GROUPS IN OUR SOCIETY ALIKE THE CHALLENGEAlthough smart solutions have the potential to connect people and to increase social cohesion, the darker side is the risk of smart city benefits not being reaped by all groups in our society alike. There are three main causes. First, some groups have a lack of ‘digital savviness’ or a lack of access to modern digital connections and digital equipment.
Second, increasing insight into risks (e.g. of becoming ill) due to emerging big data may put solidarity under pressure.
Finally, smart solutions can be used by groups to organize themselves and to create ‘digital gated communities’, which can become a threat to social cohesion and inclusiveness. Sustainability and social cohesion are under permanent pressure. It becomes clear that the government can not solve these problems on its own. Increasingly, businesses and new collectives of citizens are encouraged to help solve social problems. The search is for smart solutions, the result of co-creation between government and businesses, with scalable business models. To find these, unconventional steps need to be made, for example by organizing a contest for open data-driven solutions to social problems.