The 4 Types of Cities and How to Prepare Them for the Future
25 January, 2016 / Articles
The prospect of urban innovation excites the imagination. But dreaming up what a “smart city” will look like in some gleaming future is, by its nature, a utopian exercise. The messy truth is that cities are not the same, and even the most innovative approach can never achieve universal impact. What’s appealing for intellectuals in Copenhagen or Amsterdam is unlikely to help millions of workers in Jakarta or Lagos. To really make a difference, private entrepreneurs and civic entrepreneurs need to match projects to specific circumstances. An effective starting point is to break cities into four segments across two distinctions: legacy vs. new cities, and developed vs. emerging economies. The opportunities to innovate will differ greatly by segment.
Segment 1: Developed Economy, Legacy City
Examples: London, Detroit, Tokyo, Singapore
Characteristics: Any intervention in a legacy city has to dismantle something that existed before — a road or building, or even a regulatory authority or an entrenched service business. Slow demographic growth in developed economies creates a zero-sum situation (which is part of why the licensed cabs vs Uber/Lyft contest is so heated). Elites live in these cities, so solutions arise that primarily help users spend their excess cash. Yelp, Zillow, and Trip Advisor are examples of innovations in this context.
Implications for city leaders: Leaders should try to establish a setting where entrepreneurs can create solutions that improve quality of life — without added government expense. Airbnb is an example of a win-win quality improvement: landlords realize more cash flow from their assets, and customers gain both better choice and lower costs in their travel lodging options. Similarly, city leaders should encourage enterprises that create jobs directly (Lyft or Uber) or that indirectly facilitate expansion of work (Angie’s List or Handy).
Implications for entrepreneurs: Denizens of developed legacy cities have discretionary income. This means that entrepreneurs should focus on highly targeted solutions that work for defined segments of the population. Solutions should trend toward entertainment, education, and social networking, and they can be location specific. OpenTable (a restaurant reservations service), Motivate (the operator of CitiBike, Bay Area Bikeshare, and others), and Luxe (a web-based valet parking service) are examples.
Segment 2: Emerging Economy, Legacy City
Examples: Mumbai, São Paolo, Jakarta
Characteristics: Most physical and institutional structures are already in place in these megacities, but with fast-growing populations and severe congestion, there is an opportunity to create value by improving efficiency and livability, and there is a market of customers with cash to pay for these benefits.
Implications for city leaders: Leaders should loosen restrictions so that private finance can invest in improvements to physical infrastructure, to better use what already exists. They should also encourage sources of repayment for such investments beyond just user fees. Large-scale examples include Hong Kong’s historic real estate subsidy for MTR rail from the airport to downtown, or the per-liter subsidies for private urban water and sanitation providers in Algiers and many other cities.
Implications for entrepreneurs: Focus on public-private partnerships (PPP). Compelling solutions that focus on the usefulness of existing infrastructure — for example, traffic-route optimization or ride sharing or more effective trash pickup — also can be essentially self-funded when subsides are not available. Waze, Turo (formerly RelayRides), and WasteZero are examples. There are opportunities to combine creative financing with thoughtful use of new sensor and big-data technologies to create projects that contribute to building sustainable cities.
Segment 3: Emerging Economy, New City
Examples: Phu My Hung, Vietnam; Suzhou, China; Astana, Kazakhstan; Singapore (historically)
Characteristics: These cities tend to have high population growth and high growth rates in GDP per capita, demographic and economic tailwinds that help to boost returns. The urban areas have few existing physical or social structures to dismantle as they grow, hence fewer entrenched obstacles to new offerings. There is also immediate ROI for investments in basic services as population moves in, because they capture new revenues from new users. Finally, in these cities there is an important chance to build it right the first time, notably with respect to the roads, bridges, water, and power that will determine both economic competitiveness and quality of life for decades. The downside? If this chance is missed, new urban agglomerations will be characterized by informal sprawl and new settlements will be hard to reach after the fact with power, roads, and sanitation.
Implications for city leaders: Leaders should first focus on building hard infrastructure that will support services such as schools, hospitals, and parks. This also might be done through PPP arrangements. Next, they can encourage commercial platforms for entrepreneurs to create services including data connectivity, banking, and insurance.
Implications for entrepreneurs: In these cities, it’s too soon to think about optimizing existing infrastructure or establishing amusing ways for wealthy people to spend their disposable income. Entrepreneurs should focus on applications and services that address likely “institutional voids” ranging from inconsistent electric power to the slow enforcement of contracts. Alibaba Escrow, a unit of Chinese e-commerce giant Alibaba, holds buyer payments for B2B transactions until goods are received satisfactorily, and then releases the cash to the seller. This helps to facilitate commerce among trusted parties in a situation where some institutions and business norms, such as courts and contracts, are not fully developed to Western expectations.
Segment 4: Developed Economy, New City
Examples and characteristics: Such cities are very rare. At the moment, almost all self-proclaimed “new cities” in the developed world are in fact large, integrated real-estate developments with an urban theme, usually in close proximity to a true municipality. Examples of these initiatives include New Songdo City in South Korea, Masdar City in Abu Dhabi, and Hafen City Hamburg in Germany.
Implications for city leaders: These satellites of existing metropolises compete for jobs and to attract talented participants in the creative economy. Leaders should focus on hard infrastructure that reduces costs for companies and on the soft infrastructure that positions the city high on the quality-of-life metrics that appeal to creative-economy workers. These factors include easy transit, clean air and water, green space, and support for arts and recreation.
Implications for entrepreneurs: Align with city leaders on services that are important to knowledge workers, and help build the cities’ brand. For example, Cisco has deployed telepresence technologies (high-quality, real-time video interaction) to developments including New Songdo City in Korea and Lavasa in India to improve both the delivery of civic services and to attract employers.
Cities are different. So are solutions.
The current buzz around “smart cities” is driven by many forces, ranging from political leaders to academic writing to vendor enthusiasm. Elites can be distracted by cool technology and tourist-friendly innovations, but that’s not the whole story. Most cities can’t pay directly for “smartness,” and often they can’t even finance basic infrastructure, so innovation in many situations has to be led also by private capital with a focus on interventions that pay for themselves. Global urban innovators will do well to consider the different situations and approaches across the four segments and to match goals and financing appropriately.
