Though still relatively new here in the U.S., the advent of "smart cities" is taking hold around the globe. A key, yet often overlooked, component of the Internet of Things (IoT), smart cities are expected to become a huge market for innovative companies willing and able to get onboard. Sure, IoT encompasses a great deal more than smart cities -- cars, homes, and businesses are all becoming inter-connected, and there is no shortage of companies dipping their toes in the IoT waters.
Big hitters including Google, Apple, and Microsoft are all taking steps to incorporate IoT into the world's cars and homes. What separates Cisco (NASDAQ:CSCO) from the rest of that formidable pack is its emphasis on smart cities. And according to new data from Gartner and others, the opportunities for Cisco in a smarter and more connected world are staggering.
What is a smart city?
Imagine intersections, highways, and public transportation systems all inter-connected using powerful sensors to measure and manipulate the most efficient means of traveling. Or providing a city's or county's citizens with real-time air quality data, in conjunction with public transportation alternatives, to help mitigate the environmental impact of the world's drivers, particularly on poor air quality days.
Efficiently moving the world's commuters is only the tip of the smart city iceberg. Cisco is already working with Kansas City to install IoT -- or as CEO John Chambers refers to it, the Internet of Everything (IoE) -- devices to monitor and automatically alert authorities if there are obstructions on public train lines.
Commercial buildings are also part of the smart city world, as Cisco is proving. In Maryland, Cisco worked in conjunction with county officials to construct an affordable housing complex with automated solutions that alert emergency responders to everything from relatively minor problems like water leaks to potentially life-threatening crises like fires. And Cisco is developing smart city solutions like these around the world.
How big is big?
This year alone,, there are expected to be 1.1 billion connected "things" as part of the smart city expansion, according to Gartner. That's an impressive figure, but pales in comparison to what's expected in 2016 and beyond. By next year, smart cities will account for over 1.7 billion devices, and nearly 2.7 billion in 2017.
The good news for leading smart city providers like Cisco, and long-term investors, is the growth will continue. By 2020, Gartner predicts there will be 9.7 billion connected items in the world's cities. In terms of revenue potential, one study suggests that smart cities will become a $1.7 trillion market. It's no wonder then, with so much upside, Gartner said, "Smart cities represent a great revenue opportunity for technology and services providers (TSPs), but providers need to start to plan, engage and position their offerings now." Which is exactly what Cisco is doing.
Cisco's priming the smart city pump
In addition to the aforementioned U.S. regions, Cisco has signed agreements with a host of international cities. From Hamburg, to Barcelona, Santiago, Chile, and multiple cities in Denmark, among others, Cisco is aggressively pursuing the smart city opportunity.
And if Cisco's fiscal 2014 and Q4 financial results are any indication -- and they are -- Chambers' focus on IoE solutions delivered via the cloud are right on track. Last week's announcement that Cisco has opened a new IoE "innovation center" in Australia -- its eighth worldwide -- makes it clear there are no plans to slow down anytime soon. Which should be music to investors' ears.
Make no mistake, Cisco isn't limiting its IoE efforts to smart cities. But the potentially lucrative deals industry behemoths like Apple and Microsoft have recently inked with car manufacturers, and Google's going all in on smart homes as evidenced by its $3.2 billion deal for Nest, mean the competition in these IoT markets is fierce, and will become even worse going forward. But smart cities? Cisco's not alone, but it is head-and-shoulders above the rest, and is just scratching the surface.
Tim Brugger has no position in any stocks mentioned, though he's certainly ready for the improved traffic promised by smart cities. The Motley Fool recommends Apple, Cisco Systems, Gartner, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.