Why Cities Are Ripe For Disruption

taxis-indiaI had a girlfriend whose father was a taxi driver. He was a simple, uneducated man who came to Madrid from his poor village like many other people—like my own father—looking for a better place to live and raise a family. He was a self-taught man, but he understood the essentials very well. Why did he have to buy a taxi license?—he wondered. Why such an artificial monopoly?—he meant. He would never spend time queuing at the airport, or at the railway station. What a waste of time!—he grunted. That’s for the lazy! The taxi sector was ripe for disruption many years ago but we’ve had to wait for a key technology able to make disruption happen. In only five years, Uber has signed the death certificate of the taxicab as we once knew it. Uber is here. The taxi driver is over.

Cities are ripe for disruption. It is not because air pollution is killing people in overpopulated cities in China, India or Mongolia. It is not because in some megacities, like Sao Paulo, people are so used to massive traffic jams that they do not get offended when you are late or simply miss a meeting: Sem problemas! It is not because crime rates or the risk of contagion are unsustainable in many other cities. Those pressing problems have existed for years. Cities are ripe for disruption not because Cisco, IBM or Siemens have decided that it is the moment of the Smart City, either. Smart Cities have become common jargon in technology and among city majors and public administrations officials, thirsty for ideas and urged to convey simple messages. But behind that name there is little but a nice futuristic vision and business as usual. No, cities are ripe for disruption because Uber is here, Airbnb is here and more like them are coming.

There are dozens, maybe hundreds of activities that we carry out in a city every single day which are incredibly painful, or simply unnecessary; maybe hundreds of artificially sustained activities just to keep jobs which have become or could become redundant. Why do I have to go to three different places to renew my driving license, or to pay an unexpected and uncanny municipal tax? Why do I have to queue for hours in an old building where there is not even Wi-Fi? Even though most of us repeat the same routine every day, still a minor incident, a slightly different weather condition makes it completely impossible to predict how long it will take to arrive on time to an important meeting. If you want to account for the worst case, you will very likely end up arriving with plenty of time, wasting your precious time just waiting. Even if you are ready to do so, in some cities like Sao Paulo, very often you will be late anyway. Worst case planning simply does not make sense there. When you visit a new city you have to spend an inordinate amount of time in advance if you want to know where to should go and how to get there, how to pay for the bus or the subway. In some cities, you cannot use a city-bike if you are not a city resident. Others offer you a free ride. If you want to eat fresh vegetables or fruit for dinner, you have to drive miles away from your home to one of the very few large enough supermarkets able to offer a minimum quality. And all these are, of course, only some of the problems of relatively rich citizens living in relatively developed cities.

Despite all the pains and all the inconvenience, cities continue to attract more and more people every single day, because they still represent the best alternative for most people across geographies. Economists barely understand the fundamental reasons behind the economics of agglomeration, but statistics are overwhelmingly clear. By and large, cities are where the economic activity takes place. And cities are where the economic activity will take place in the future even more. Half of the world’s population live in cities today, generating more than 80 percent of the global GDP. The top 600 cities accounted for 50 percent of global GDP in 2007, and McKinsey expects 600 cities to account for about 60 percent of worldwide GDP. With a fifth of the world’s population, they will generate 62 percent of global growth in the period 2007-2025.

As you would expect, the makeup of the group of top 600 cities will change as the centre of gravity of the urban world moves south and, even more decisively, east. One of every three developed market cities will no longer belong to the top 600, and one out of every 20 cities in emerging markets is likely to see its rank drop out of the top 600. By 2025, 136 new cities will enter the top 600, all of them from the developing world and overwhelmingly (100 new cities) from China. Megacities have not been driving global growth for the past 15 years and we can expect this trend to continue. McKinsey estimates that today’s 23 megacities will contribute just over 10 percent of global growth to 2025, below their 14 percent share of global GDP today. Worldwide, we will see 13 middleweight cities become megacities by 2025, 12 of which are in emerging markets (the exception is Chicago) and seven in China alone.

What statistics cannot say is what these future cities will be like. Econometrics does not cast light into what’s going on inside those crisp statistics. What is it going to sustain the economic growth that economic models foresee? What will the incumbent businesses do? What will the newly created firms do? What will they be like? What services will they offer and how will they earn money? What jobs will be more demanded? Will they be the same old jobs that we have today? Similar to today’s jobs? Will they require new skills and tools? Will there be brand new professional activities? How do mayors, urbanists, planners, city officials and even citizens have to act now? Do they have to put in place careful plans, write new regulations, remove barriers? What barriers? Or will disruption happen anyway and flood over all possible anticipation?

Nobody knows for sure the shape of cities to come. In the last couple of years I have been in contact with many different people who are carefully studying cities as places of incredible opportunity. Coming from different parts of the world, with very different backgrounds and even more different projects and interests: city mayors who have understood the power of technology and can foresee the opportunities it may bring; professionals in fields ranging from architecture to computer science, from industrial design to economics or politics; people working for NGO’s and governmental bodies acting in emerging countries; activists, self-organized citizen communities, entrepreneurs and innovators.

None of them know for sure how change is going to take place, how fast, or where it will start. They watch the trends, and try to set themselves to ride the wave. It will actually be like a tidal wave. Uber is like one of those tidal waves that travels miles across the ocean, and then flood the coast. It will be a tidal wave created by the mounting pressure of millions of people coming to the same places and gathering there looking for a better life, for real opportunities to thrive. It is the ingenuity of people, and the greediness of capitalism, that create the force behind change and growth.

It is going to happen. It is already happening even if we are perhaps unaware. It will only accelerate. In only seven years since the iPhone was presented by Apple, the way we do many activities has completely changed. The way we look for information, read the news, and communicate with others. In seven years old telephone conversations are practically gone by. Today we text, and multi-task, and drown in email. The smartphone has changed the way we take and share photographs, make a reservation in a hotel, or a restaurant, buy a ticket, book a flight, or ask for a taxi ride. Seven years and one general purpose pocket-size personal computer, and the world has changed in many different ways.

In only five years, an app-based company head-quartered in San Francisco, California, has managed to extend to 53 countries and more than 200 cities worldwide. In April last year 2014, Uber raised $1.2 billion in new funding, bringing the company’s value to roughly $40 billion. That was up from a paltry $18 billion only six months before. A company with a simple value proposition, facing brutal opposition in some markets, and using all the wicked arts of the worst-style capitalism, is growing like fire in the wild. Uber addressed an old market with old problems, with a simple idea and a new technology that made change possible. It pointed to the taxi sector as we point with our smartphone to a statue in a foreign city just to take a photo. Nobody expected what came later, but now it is absolutely intuitive to ask: Will there really be an Uber for everything?

Now think that we have only started to connect many more things than just computers and people’s personal devices. It is always difficult to know exactly how and when, but sooner rather than later many more things around us will be connected, will have a bit more of intelligence—embedded sensing and computer capabilities—and will be able to react to your presence and your wishes. It is actually difficult to imagine exactly what use all those smart objects will be to you, but you will understand it in due time. And there will be so many of them, so pervasively distributed all over the place, that I am convinced that they will produce massive change in the way we do many things. Again.

Uber is just the beginning. Uber is now balancing offer and demand in ride-sharing markets throughout the world. Once they level off across cities and countries, there will be a lot less reasons to own a car, at least as the main way to commute inside those cities and countries. The number of cars needed to sustain a given level of economic activity will get substantially reduced. This will create opportunities for rationalizing spaces in cities. Then Uber will have all the incentives to save on their main factors of production, and it will go first for the drivers, and then for the cars. Uber is going to be one of the main forces pushing for driving automation: the self-driving car. And Uber is going to be one of the main forces pushing for a better car’s power source: the electric engine. And once we have hundreds of thousands of electric cars in cities, cars will become an alternative power supply themselves, just made of pervasive autonomous rechargeable batteries that will compete with—or supplement—the current mainstream power supply. Even at home!. And this might be the beginning of the solar city, and then the story will go on and on…

There is no point in trying to carefully anticipate the shape of things to come. Once and again we have failed to anticipate even the most obvious ways in which the future has finally materialized. Nobody predicted that people would rather send small text messages than talk, and therefore the incredible success of SMS came as a complete unintended side effect of the GSM technology. With the SMS’s growing like wildfire in the beginning of the 21st century, nobody saw Twitter coming, Even though everybody talked about smartphones years before the iPhone, nobody knew what a smartphone would actually look like and that the smartphone would create the disruption it has created. Not even Steve Jobs knew exactly what the smartphone would represent and that the smartphone would make Apple the biggest and most valuable company ever. Therefore, I think it is an absolute waste of time trying to anticipate and visualize what the future City will be, a truly Smart City. But one day, there will be one and we all will know it when we see it.

To begin with, there are many things that can start to change for the better when we have more things connected. The smartphone has created completely new ways to do things, but it has done so at the expense of creating an unnatural dependency of a foreign object that we are obliged to take with us everywhere, and use it adopting uncomfortable positions, curving our back, straining our eyes and ridiculously typing with our thumbs. We have become slaves to the smartphone. I am sure than in a not so distant future, people will look back to this point in time and will laugh out loud at how far down the road we have gone with the smartphone, while they go about with all sort of wearables, gadgets and new ways to represent and consume information that much better fit our natural physical skills.

Maybe to say that cities are ripe for disruption is just too imprecise, it is too naïve given that cities are so many different things and there are so many different cities and in so many different places with wildly different problems. There are so many barriers to change and innovation in cities, so many entrenched interests. However, it is in the very nature of a city to be poised for disruption. Cities are complex and delicate systems. Barriers can go only so far. They can help create metastable states, like an overcooled liquid that will abruptly crystallize after being only slightly shaken. In many cities change is just around the corner, and there is a wealth of opportunities for those able to see that change is possible, how change will be possible, for those who manage to get in the right place at the right moment. Just like surfing!

What do you think? Are we expecting unrealistic things from how technology can affect our cities? Or do you think we are about to see unexpected things? I would like to hear your thoughts.

7 comments

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