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Small or medium-scale focused research project (STREP) FP7-ICT-2013-11 Water analytics and Intelligent Sensing for Demand Optimised Management WISDOM Project Duration: 2014.02.01 – 2017.01.31 Grant Agreement number: 619795 Collaborative Project WP.5 D5.6 DAPP WISDOM Business model (Final) Submission Date: 31.01.2017 Re-submission Date: 12.05.2017 Due Date: 31.01.2017 Status of Deliverable: DrA WoD ReL DeL AppR Nature of Deliverable: R P D O Dissemination Level: PU PP RE CO Project Coordinator: Daniela BELZITI Tel: +33 4 93 95 64 14 Fax: +33 4 93 95 67 33 E-mail: [email protected] Project website: www.wisdom-project.eu

Collaborative Project WP.5 D5.6 DAPP - CORDIS · WP.5 D5.6 DAPP WISDOM usiness model (Final) Submission Date: 31.01.2017 Re-submission Date: 12.05.2017 Due Date: 31.01.2017 Status

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Page 1: Collaborative Project WP.5 D5.6 DAPP - CORDIS · WP.5 D5.6 DAPP WISDOM usiness model (Final) Submission Date: 31.01.2017 Re-submission Date: 12.05.2017 Due Date: 31.01.2017 Status

Small or medium-scale focused research project (STREP) FP7-ICT-2013-11

Water analytics and Intelligent Sensing for Demand Optimised

Management

WISDOM

Project Duration: 2014.02.01 – 2017.01.31 Grant Agreement number: 619795 Collaborative Project WP.5 D5.6 DAPP

WISDOM Business model

(Final) Submission Date:

31.01.2017 Re-submission Date:

12.05.2017 Due Date:

31.01.2017

Status of Deliverable: DrA WoD ReL DeL AppR

Nature of Deliverable: R P D O

Dissemination Level:

PU PP RE CO

Project Coordinator: Daniela BELZITI Tel: +33 4 93 95 64 14 Fax: +33 4 93 95 67 33 E-mail: [email protected] Project website: www.wisdom-project.eu

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DOCUMENT INFORMATION

Submission Date: 31.01.17

Version: V1

Author(s): Alberto Musetti (DAPP) Elenia Duce (DAPP)

Contributor(s): Tom Beach (CU), Keith Ellis (INTEL); Sophie Straiton (DCWW), Mathew Preece (CCC)

Reviewer(s): AndreaMaria Ferrari (DAPP), Tom Beach (CU), Mathew Preece (CCC), Anna Taliana (DCWW), Lydia Trzcinski (CSTB) and Julie Mac Cann (ICL)

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DOCUMENT HISTORY

Date Version Name1 Remark 14/01/16 V0.1 Elenia Duce (DAPP) Complete version

16/01/17 V0.2 Anna Taliana (DCWW) Review of Document

24/01/17 V0.3 Sophie Straiton (DCWW) Contribution and Revision

26/01/17 V0.4 Elenia Duce (DAPP) Finalisation

27/01/17 V0.5 Alberto Musetti (DAPP) Finalisation

27/01/17 V0.6 Andrea Maria Ferrari (DAPP) Document Review

30/01/17 V0.7 Tom Beach (CU) Document Review

30/01/17 V0.8 Mathew Preece (CCC) Document Review

30/01/17 V0.8 Lydia Trzcinski (CSTB) Document Review

30/01/17 V0.8 Anna Taliana (DCWW)) Document Review

31/01/17 V0.8 Mathew Preece (CCC) Additional Document Review

31/01/17 V0.9 Tom Beach (CCC) Additional contribution and Document Review

31/01/17 V1 Keith A Ellis (INTEL) Document Review / edits

09/05/17 V1.1 Keith A Ellis (INTEL) Additional contribution

11/05/17 V1.2 Elenia Duce (DAPP) Additional contribution

1 Main Contributor and Partner

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COPYRIGHT

© Copyright 2014 WISDOM Consortium consisting of CSTB, DAPP, CU, CCC, ASP, SAT, INTEL, ICL, ADV, IDRAN and DCWW. This document may not be copied, reproduced, or modified in whole or in part for any purpose without written permission from the WISDOM Consortium. In addition to such written permission to copy, reproduce, or modify this document in whole or part, an acknowledgement of the authors of the document and all applicable portions of the copyright notice must be clearly referenced. All rights reserved.

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TABLE OF CONTENTS

Document Information .................................................................................................................... 2

Document History ........................................................................................................................... 3

Copyright ........................................................................................................................................ 4

Table of Contents ............................................................................................................................ 5

List of Figures .................................................................................................................................. 7

List of Tables ................................................................................................................................... 8

Abbreviations ................................................................................................................................. 9

Executive Summary ....................................................................................................................... 10

The proposed value of work .............................................................................................................................. 10

Analysis of Progress against Objectives ............................................................................................................. 11

1. Value Proposition: WISDOM-as-a-Service ............................................................................... 14

2. The WISDOM-as-a-Service Business Model ............................................................................. 17

2.1. The WISDOM-as-a-Service Business Model .......................................................................................... 17

2.2. Analysis of the WISDOM-as-a-Service Business Model ......................................................................... 18

2.3. WISDOM Business Model Canvas .......................................................................................................... 18

3. Business Plan: Financial and Economic figures ........................................................................ 23

3.1. Business structure ................................................................................................................................. 23

3.1. Market forecast ..................................................................................................................................... 23

3.2. Product description ............................................................................................................................... 26

3.3. Sales Forecast ........................................................................................................................................ 27

3.4. SWOT ..................................................................................................................................................... 28

3.5. Risk Assessment ..................................................................................................................................... 28

3.6. Financial Figures .................................................................................................................................... 29

3.7. ROI ......................................................................................................................................................... 31

4. Current Market Needs And Existing Business Models Related To Water Utilities As Main End-Users ............................................................................................................................................ 33

4.1. Market Framework: Global Smart Water management ....................................................................... 33

4.1.1. General Market trends and needs ................................................................................................. 36

4.2. Focus on Water utilities market needs .................................................................................................. 38

4.3. Water Utility existing business model analysis ..................................................................................... 41

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5. Revenues generation models and Saving schemes for water utilities ....................................... 43

5.1. Revenue generation for water utilities.................................................................................................. 43

5.2. Saving schemes for water utilities ......................................................................................................... 43

6. Procurement Models Opportunities For WISDOM–as–a-service .............................................. 46

Conclusions ................................................................................................................................... 48

ANNEX I: Business model methodology ......................................................................................... 49

Introduction to the Business Modelling ............................................................................................................ 49

Business Model Canvas ...................................................................................................................................... 49

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LIST OF FIGURES

Figure 1The two WISDOM exploitation routes ...................................................................................................... 12 Figure 2 Connection between assets and services ................................................................................................. 14 Figure 3: The 3-tier WISDOM reference architecture and implementation .......................................................... 15 Figure 4 Figures related to Section E 36 ................................................................................................................ 26 Figure 5 Figures related to Section E 37 ................................................................................................................ 26 Figure 6 Global Water Market Value and related Key activities across the value chain (Source Forst & Sallivan)33 Figure 7 Global Water Market Value by Segments (Source Forst & Sallivan) ....................................................... 33 Figure 8 Key Water sector Drivers (Source Forst & Sallivan) ................................................................................. 34 Figure 9 Real time monitoring and management of Services along the Water Cycle (Source Forst & Sallivan) ... 34 Figure 10 Smart Water Grid market Regional Attractiveness by Region (2010-2020) (Source: Markets and Markets) ................................................................................................................................................................ 35 Figure 11 Smart Water Meter Penetration, 2007-2020, 2030 (Europe) (Source Forst&Sallivan) ......................... 37 Figure 12 Smart Water Metering Market Attractiveness by Vertical Market (Europe) (Source Forst&Sallivan) .. 37 Figure 13 PCP vs PPI ............................................................................................................................................... 46

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LIST OF TABLES

Table 1 Possible % of market penetration ............................................................................................................. 27 Table 2 Possible Market penetration in terms of number of companies and services sold on average ............... 27 Table 3 Key drivers of the smart water revolution ................................................................................................ 35 Table 4 WISDOM impact on Water utilities Key priorities ..................................................................................... 41 Table 5 Impact of WISDOM on water utilities saving actions ............................................................................... 45 Table 6 Differences between PCP and PPI (source Smart PCP).............................................................................. 46

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ABBREVIATIONS

Acronym Full name ICT Information Communication Technology SoS System of System DaaS Data-as-a-Service WaaS WISDOM-as-a-Service IoT Internet-of-things CSO Combined Sewer Overflow CAGR Compound Annual Growth Rate NRW Non-Revenue Water IWCM Integrated water Cycle Management AMI Advanced metering infrastructure ESCO Energy service company PPI Public Procurement of Innovation solutions PCP Pre-Commercial Procurement HVAC Heating, ventilation and air conditioning VPN Virtual private network BM Business Model

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EXECUTIVE SUMMARY

The proposed value of work

This document presents the results of activities performed in task 5.6 “Market Needs and New Socio-Economic Business Models for Efficient Water Management”. This task firstly defines the consortiums vision for how the project outcomes can be best taken to market and outlines an appropriate business model. Subsequently, this model has been further described to consider market needs and existing business models in the area of district level water services.

In this deliverable this task has been broken down into:

Development of an appropriate business model for WISDOM.

Description and analysis of the current market needs and existing business models in the area of district level water services.

Description and analysis of the revenue generation and saving schemes in the identified water business networks in order to identify new financial models for water services and distributors.

Description and analysis of appropriate procurement models for water services and distributors.

The key value of the work being conducted in T5.6 is the description of current market needs of water service companies as well as the analysis of related business models, the identification of business opportunities and description of a possible business model in order to ensure effective exploitation of WISDOM solution as a whole.

This business model, which has been elicited through the work done in this task, envisages the use of the WISDOM system as a service. In this model, water companies utilize WISDOM (through the payment of a fee) to manage the data generated by the sensors installed in their water network. This basic service level includes access to the WISDOM IS, which is underpinned by the WISDOM ontology and best practice security functionality, and to a data query, alerting and visualization service. Additionally, adoption of the WISDOM platform enables water networks to leverage a menu of WISDOM services (at different tiers of cost). It’s envisaged these services would include those developed within WISDOM as well as third party services (the feasibility of which has been proved by the use of the CMR tool in SAT).

This deliverable consists of 6 Sections. The Value proposition of WISDOM-as-a-Service (WaaS) is provided in Section 1. The description of Business model developed for WISDOM-as-a-Service is provided in Section 2. Section 3 includes an overview of the market trends, needs and the description of existing business models in the field of water utilities and the impact that WISDOM-as-a-Service can have on them. The Section 4 provides an overview of existing revenue generation model(s) and possible saving schemes for water utilities and the impact WISDOM-as-a-Service might have. The description of the possible procurement model opportunities for WISDOM-as-a-Service is reported in Section 5.

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Analysis of Progress against Objectives

Objective 1: Current market needs and existing business models (concept, content, earning logics, financing models and risk management) in the area of district level water services and business will be analysed.

An analysis of current market needs and trends focused on the smart water management sector has been performed and reported in Section 4. Additionally, this same section provides the analysis of existing business models focused on the main relevant stakeholders (water utilities) and outlines aspects to consider in terms of the impact adoption of WISDOM-as-a-Service could have on such models.

Objective 2: Then revenue generation and saving schemes in the identified business networks will be also studied, in order to identify new financial models for water services and distributors to be applied at district level.

An analysis of revenue generation and saving schemes for water utilities as the main relevant stakeholder has been performed and is reported in Section 5. This Section has also analysed how the adoption of WISDOM-as-a-Service can help to implement the saving schemes adopted by water utilities in order to reduce costs.

Objective 3: The procurement models for water services and distributors will be deeply analysed and supporting methods and models for assessing service providers and basic principles of contracting models, to improve the use of innovative procurement/sourcing models will be developed.

An analysis of procurements models has been performed and reported in Section 6. It was underlined how these procurement schemes can boost the adoption of innovative solutions in the public water sector. It was also highlighted how WISDOM could be a valuable asset in addressing these kinds of procurements.

Objective 4: The innovative business model(s) generated will be evaluated taking into account the point of view of different stakeholders (service provider, clients, subcontractors, owners, financing institutions, water distributors) within the consortium (pilot sites level) and outside, through focused interviews.

The WISDOM-as-a-Service business model was developed taking into account the value proposition of the platform and services developed in the project and considering also the point of view of pilot partners and the point of view of SIG members and external experts (Sections 1-2).

A note on D5.6 objectives:

The business model presented in this document (WaaS) represents the consortiums view as to the most appropriate approach given the desire to exploit the project as a whole. However, it should be noted that consortium does not currently have the capacity to execute the posited approach and has encountered issues

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that somewhat impact the objectives outlined above. This is due to the fact that, without partner that is able to take forward the business model, performing many of the more detailed analysis of the proposed model is not feasible, nor a worthwhile use of resources.

Principally, the consortium has faced conflicting commitments that span three project deliverables, namely:- D5.4 Large scale Replication Plan for Public Release, D5.6 WISDOM Business Model (this document) and D6.2 Exploitation. There is an onus on the consortia to exploit the project results (D6.2) and to outline a likely business model that compliments commercial exploitation (D5.6) yet conversely there is a requirement to support large scale replication (D5.4).

Figure 1The two WISDOM exploitation routes

As per Figure 1, there is essentially two exploitation paths open to the consortium, that of a ‘commercial product offering’ or that of a ‘reference architecture and approach’. Regarding the commercial product route the consortium were encouraged to propose an approach that assumed the consortium or a consortium partner could commercially exploit the overall project output i.e. the platform and services. This is why the posited business model targets a WISDOM-as-a-Service type strategy despite the fact that no existing consortia partner could currently take this specific route to market. INTEL may appear an obvious option to do so, but INTEL is not a services business while DCWW can only exploit the project within the boundaries of their ‘not for profit’ charter. Even so, DCWW are conducting an internal assessment to understand if the platform and/or services, can be exploited by them partly or wholly within their network.

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So to summarise, failing a positive DCWW assessment outcome, a third party licensing agreement shall be sought (the left of Figure 1) and failing that, the path to open source the platform (the right of Figure 1) may be persued. However, in the latter case the services will remain subject to partner’s individual intellectual property rights given licensing is the primary option open to some partners.

The rest of the document assumes the consortium, a consortium partner and/or third party can go to market following the DaaS strategy that follows.

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1. VALUE PROPOSITION: WISDOM-AS-A-SERVICE

WHAT IS WISDOM?

WISDOM is an information system (IS) that targets optimised water resource management. It incorporates a Reference Architecture, an Implementation and a suite of loosely coupled Analytical Services.

Figure 2 Connection between assets and services

The goal of the WISDOM-IS is to move beyond a Data-as-a-Service (DaaS) to WISDOM-as-a-Service (WaaS) by connecting domain assets with an Analytical Services (Figure 2) in a way that supports scalability, extensibility, secure shared meaning and the provision of an optimised water resource management

WHAT IS THE PROBLEM THAT NEEDS TO BE SOLVED?

The WISDOM premise is a familiar one – ‘by combining Information & Communication Technologies (ICT) targeting data Acquisition & Analytics, one can inform Actions that have real value for the target domain’. As suggested, the research of WISDOM focuses on generating ‘Analytics’ based domain insights. Traditionally, in order to ‘Act’ on such insights or indeed to ‘Acquire’ the data on which such insights are based, it has been necessary that stakeholders & information systems have appropriate access to accurate data in near real time. However, this has proved a typically onerous task, as heterogeneous data formats, application integration costs & batch processing times inhibited the free flow of accurate & timely information amongst systems.

THE WISDOM APPROACH

WISDOM focused on mitigating the issues above by taking a System-of-Systems (SoS) approach which was deemed pragmatic given system design requirements that included; multi-ownership, legacy systems, cost sensitivities, security, privacy and reliability. While the approach is conceptually SoS, the IS architecture follows a classic 3 tier structure (Figure 3). The IS platform is cloud hosted, so typically are the services, while edge compute is largely on premise, i.e. embedded within the water network or domestic properties. The IS uses best practice with respect of security and privacy while interoperability is underpinned by the WISDOM ontology.

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Figure 3: The 3-tier WISDOM reference architecture and implementation

The WISDOM specific components (blue) & non-WISDOM components (green) combine to form the overall SoS. The ‘services’, to the right of Figure 3 represent value for the domain components (assets), to the left. The purpose of the ‘edge’ & ‘platform’ tiers is to connect domain assets with valued ‘Services’ in a way that supports scalability, extensibility & secure shared meaning.

The SoS approach of the WISDOM-IS allows for the scalable and secure exposure of data & services in a way more likely to be adopted as it allows the WISDOM IS to act as a recommender system or a controlling system. The implementation of a hybrid architecture, whereby edge & cloud processing are utilised, mitigates time critical, security and/or privacy sensitivities, while the WISDOM ontology provides for extensible shared meaning between the stakeholders and systems of the water domain.

Thus, by taking this approach the WISDOM-IS possesses several unique selling points:

Connection to WISDOM analytical services e.g. Pump optimization, CSO prediction, leakage localization;

Ability to integrate with 3rd party services;

Underpinning by an ontology offering means for extensible interoperability ;

Near-real-time water network monitoring across a variety of current and legacy sensing and monitoring systems;

Ability to be extensible to new data sources;

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Support for edge and cloud processing.

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2. THE WISDOM-AS-A-SERVICE BUSINESS MODEL

This section presents the business model that has been developed by the consortium as the optimal means for exploiting the WISDOM system in its entirety. The business model concept is introduced in Section 2.1 and then detailed / analysed using the business model canvas methodology in Section 2.2 and 2.3.

Subsequently, in order to better understand how WISDOM-as-a-Service business model could be useful to generate an economic and business impact, it was also necessary to analyze in depth the current market trends and the needs and the existing business models of water utilities (as main end users of WISDOM-as-a-Service) (Section 3) and also the existing saving cost schemes adopted by these utilities (Section 4).

Furthermore, it was useful to analyze, in order to have a clear idea of possible market boosters, the existing innovative procurement models that could represent a real opportunity for the further development of WISDOM-as-a-Service (Section 5).

2.1. The WISDOM-as-a-Service Business Model

The Business Model developed by the consortium focuses on the concept of offering WISDOM-as-a-Service targeting efficient water management and additional water services.

The WISDOM-as-a-service approach was described in Section 1 and offers near-real time data acquisition, together with an extensible architecture that supports integration of new data sources and services such as those developed by the WISDOM consortium (CSO Prediction, Pumping Optimisation) or those created by third parties (such as the CMR leakage localization tool). The WISDOM system supports both edge and cloud based processing and is all underpinned by an ontology which provides a means for extensible interoperability.

The core business offering of the WISDOM-as-a-Service platform is to water network operators for a monthly fee, enabling them to utilize the platform to manage their data, make use of the platform’s user interfaces and take advantage of core system’s services, including the ontology. The platform’s use of an ontology is a key competitive advantage in this area, allowing interoperability, extensibility and variety of other benefits (as has been described in D2.2).

Furthermore, the WISDOM platform will offer extra services that can be purchased by water utilities i.e. those developed by the WISDOM consortium such as CSO prediction and pumping optimisation. These valuable services are a key element in the WISDOM business model, offering extra revenue and also attracting new users to the platform who wish to take advantage of these services.

Furthermore, an additional revenue stream is opened up by the fact that the WISDOM-as-a-Service provides a platform on which third parties can develop services. This opens up the possibility for WISDOM to act as an “app store” for the Water Domain where the customers (water utilities) can buy services that they are interested in for their networks. This allows the WISDOM platform to generate revenue by the sales of services through its platform, in addition to charges levied on service providers to offer their services through WISDOM.

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2.2. Analysis of the WISDOM-as-a-Service Business Model

Following the documentation of the concept of the WISDOM-as-a-Service business model in the previous section, this section will more exhaustively describe the model following the Business Model Canvas methodology (reported in ANNEX I). Briefly, this methodology follows the following key steps (building blocks):

1. Description of Value proposition and unique selling points (description of the characteristics of the products/services offered);

2. Definition of Customers segments (identification of the clients segments on the basis of their needs/benefits guaranteed);

3. Description of channels (description of how the company communicates with its customers and provides its services to make available the Value Proposition);

4. Description of customers relationship (identification of the path for acquiring and keeping faithful the customers);

5. Description of revenue streams (identification of the revenues model);

6. Description of Key Resources (identification of the most important resources needed to deliver the Value Proposition to the Customers);

7. Description of Key Activities (identification of the most important things a company must do to make its business model work);

8. Description of Key Partnership (description of the network of suppliers and partners that make the business model work);

9. Description of Costs Structure (description of all costs incurred to operate a business model).

Following this methodology each of its nine building blocks are identified and accurately described below in the following sub sections.

2.3. WISDOM Business Model Canvas

VALUE PROPOSITION

The key value proposition in the WISDOM platform itself (which has been developed in the project) is described in Section 1. This value proposition will be leveraged via the conceptual WISDOM business model which envisages the use of the WISDOM-as-a-Service, utilized by water companies (through the payment of a fee, see subsection “revenue streams” below) to manage the data generated by the sensors installed in their water network and to provide a means of consuming services of interest accessed via the platform, this model is described in more detail in Section 2.1. Then additionally, WISDOM-as-a-Service will offer extra services (that can be purchased by water utilities, see subsection “revenue streams” below) such as CSO prediction and

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pumping optimization. These valuable services are a key element in the WISDOM business model, attracting new users to the platform who wish to take advantage of these services. Finally, service providers can make their own services available on the WISDOM platform benefits all parties; WISDOM (through our ability to levy a fee to allow service providers to access the platform, see subsection “revenue streams” below) and service providers (by expanding their customer base).

CUSTOMER SEGMENTS

The customers potentially interested in purchasing the WISDOM-as-a-Service can be:

Water services companies or group of (utilities and authorities)2: these organizations show great interest in measures and applications finalized to obtain consistent water management optimisation combined with costs reduction. In particular, Water Utilities are trying to gain insights & offer insights to the users of their networks so as to optimise the management / efficiency of the same. Differently from the final end-users of the water services, utilities are looking for a cost-effective service for real-time optimisation, because the existing real-time optimisation is too costly for water utilities. Hence, they really need an information system in order to connect near real-time domain assets with domain focused ‘Services’: having enough data will allow utilities to optimise their networks. WISDOM solution is able to meet needs of water utilities and authorities in a way that supports scalability, extensibility and secure shared meaning. Moreover the WISDOM open-source System-of-Systems is attractive to help these actors with interoperability with other existing systems3. In fact, the WISDOM solution provides an ontology methodology extensible with respect to data inputs and with 3rd party services and having also an edge approach.

Service providers: interested ICT service providers will be able to add their tools to the platform developing the interfaces/APIs required and then “publishing” their tool to the platform. They would receive revenues when someone uses their tool, with WISDOM taking a portion and, possibly, charging a management fee.

CHANNELS

The dissemination and distribution of WISDOM solution to targeted customer segments can exploit several channels, direct or indirect, but, specifically, the selling of the WISDOM-as-a-Service involves direct channels, since the value proposition of the solution comprises aspects characterized by high technological innovative features, which require a direct support for the selling activity.

Dedicated Web platform: a web platform is a powerful instrument to reach interested customers promoting advantages and benefits of WISDOM solution, selling WISDOM and third party services

2 During the SIG session related to the BM validation held during The WISDOM final Event in Cardiff, a SIG member David McIver, of Optimatics

suggested to try to get an agreement from a group of utilities, targeting someone like a Fathom http://www.gwfathom.com and license the ontology to them, or with the same intention approach Water regulator as OFWAT http://www.ofwat.gov.uk/ 3 This aspect is really interesting for Local Authorities as attested by the SIG member Denis Guibert representing Nantes Métropole also during The WISDOM Final Event

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through a dedicated app store and, at the same time, supporting clients with customisable approach and assistance.

Exhibitions, fairs, workshops and events: participations to these social and trade shows represent an instrument to promote WISDOM product, getting in contact with new potential customers and cultivating strategic partnerships.

Other important channels are related to the publication and dissemination of achievements in magazines and newspapers addressed for professional organizations and associations and also to the realization of TV and web TV documentaries.

CUSTOMER RELATIONSHIPS

The favorable type of customer relationships are the personal ones for the same reasons already found for the channels selection: through a direct personal contact the entity selling the monitoring system can satisfy the specific needs of clients providing dedicated assistance as well.

Considering the particular type of product (online platform and related service) the technical support is fundamental, therefore it is important to have a reliable system to gather customer feedback interacting with users. The support must be fast and accurate and it will be provided through a continuous automated service enabling a direct interaction between the different clients and the Company customer service. The personal assistance service can be provided also as online support and chat.

REVENUE STREAMS

End users (e.g. water companies, smart sensor providers, etc.) who register at the “WISDOM Platform”, will be able to use the available services (some could be free, some for pay) and third party developers could add their tools developed on the WISDOM platform, paying an agreed fee. Summarising, the possibilities of revenue streams, as incomes coming from the selling of WISDOM-as-a-service, can be identified with:

Fee for water network utilities to access the platform and manage data

Fee charged to water networks to access to WISDOM services.

Management fee charged to allow third parties to place their services on the WISDOM platform.

Management fee charged to assist smart sensor and smart metering providers in interfacing directly with WISDOM through WISDOM ontology.

KEY RESOURCES

WISDOM solution is a system of systems – integrating monitoring systems with data management and analytic tools. It is an ensemble of many different technologies and principles: it follows that there are several key resources, enlisted here below.

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Intellectual resource:

ontology modeling expertise

Sale, marketing and law expertise Human resources:

water specialists

domain experts

ontology engineers

data mining specialist

system administrators

experts of data management platform Platform:

ICT infrastructure (servers, communication infrastructure) to support WISDOM services

integration with water network sensing systems and legacy technologies

data processing and storage system

Visualization tools

hard- and software resources for data acquisition

KEY ACTIVITIES

As for key resources, multiform nature of the project impose many strategic activities that should be accomplished to generate value proposition, reach clients and keep relationships with them in order to generate revenues.

Production activities:

Ontology/data model proprietary design and population;

Development of an initial catalogue of services to attract customers to the platform;

Ongoing development of algorithms for the data processing, storage and visualization development of interfaces.

Platform/Network:

Connection to data flow from sensors and meters and development of appropriate DANs where necessary;

Data processing;

Software tool periodical maintenance, optimisation and improvements. Marketing activities:

Participation to workshops and research conferences to promote the company expertise at big scale;

Organisation of meetings with potential clients to directly inform them about the project results.

KEY PARTNERSHIPS

With the exception of Consortium members, partners necessary for the operation of the business model are set on many levels. Strategic alliances could include:

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Water utilities and European companies active in the water and energy sectors (partnership useful to boost the visibility on the market of WISDOM-as-a-Service)

Standardization bodies (partnership needed in order to identify how WISDOM can continue to contribute to standards and initiatives in the ICT for Water Resource Management domain).

Service providers – establishing relationship to enable the provision of an initial catalogue of services to attract customers to the platform.

COST STRUCTURES

Due to the specific type of product/service offered, the cost structure is mainly characterised by:

Human resources costs, including developers, customer services and marketing

Operative and maintenance costs for ICT infrastructure.

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3. BUSINESS PLAN: FINANCIAL AND ECONOMIC FIGURES

As anticipated in the Executive Summary, DCWW are assessing if the platform and/or services, can be exploited within their organization. In the case that will not possible and a third party DaaS licensing agreement is not likely, the path to open source the platform can be taken and all services will remain subject to partner’s individual intellectual property rights given licensing is the primary option open to some partners. According to this premise, we have developed the following Business Plan.

3.1. Business structure

The roles and contributions that the project partners have given during the development of the project are the basis of the business structure adopted for the exploitation of the project results as described in Deliverable D6.2. The partners basically agree to pursue a set of synergic activities while remaining independent organizations. Partners provide resources in order to develop the possible new business such as services, distribution channels, manufacturing capability, knowledge, expertise, utilizing own internal resources.

3.1. Market forecast

From an economic perspective, the water and the correlated wastewater sectors are important in Europe as they supply 600,000 jobs for over 70,000 water services companies. The stake of investments in infrastructure is quite high with over 3.5 million km of drinking water networks, over 2.2 million km of wastewater networks and 70,000 wastewater treatment plants. In monetary terms, this represents an annual investment of over €33billion and a turnover of 72 billion per year.

According to Eurostat (2015), there were 75,842 thousand companies classified within the EU-28’s water supply, sewerage, waste management and remediation activities sector in 2015. This number includes all the activities in Section E, in particular:

E36 Water collection, treatment and supply

E37 Sewerage

E38 Waste collection, treatment and disposal activities; materials recovery

E381 Waste collection

E3811 Collection of non-hazardous waste

E3812 Collection of hazardous waste

E382 Waste treatment and disposal

E3821 Treatment and disposal of non-hazardous waste

E3822 Treatment and disposal of hazardous waste

E383 Materials recovery

E3831 Dismantling of wrecks

E3832 Recovery of sorted materials

E39 Remediation activities and other waste management services

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With particular reference to this case, Sections E 36 and E 37 are considered. Those divisions include the collection, treatment and distribution of water for domestic and industrial needs. This activity includes the collection of water from rivers, lakes, wells and so on, the collection of rain water, the purification of water for water supply purposes, the treatment of water for industrial and other purposes, the desalting of sea or ground water to produce water as the principal product of interest, the distribution of water through mains, by trucks or other means and the operation of irrigation canals.

The number of enterprises classified to the water supply sector (Division 36) in the EU-27 in 2015 was 14.0 thousand. From 2011 to 2015, the numbers of companies has decreased. Regarding the activity “sewerage” (Section E 37), the total amount of companies is 10,993.

The organization of the water supply sector takes many different forms, with state-owned, private and mutual enterprises, as well as municipalities involved in terms of the ownership and/or operation of infrastructure. As a result, the number of enterprises classified to the water supply sector and their size varies greatly between EU Member States, reflecting whether or not this is a service provided by a large number of local suppliers or a relatively small number of regional or national (even international) suppliers.

In fact, the water market involves a list of actors with different roles, which is highly related to the national or regional context. At the core, public institutions are responsible for legislations and policies. Amongst the public actors, municipalities tend to have the most important decision power concerning the organization of the water services and fixing the prices. In most countries, the decisions about new investments and the way to finance them, however, tends to be the responsibility of the national (regional) water services.

In most countries, responsibilities concerning water service operation, consumer relation management, electromechanical renewal, existing infrastructure renewal, main infrastructure extension and R&D may be transferred to private operators, which is already the case is most countries at least for a few areas. This implies a major market potential for private operators.

The water supply sector is dominated by large enterprises (employing 250 or more persons) — which is perhaps unsurprising given the considerable investment required for long-term projects that aim to develop production facilities and distribution networks. There were around 300 large enterprises within the EU-27’s water supply sector in 2015. Together they employed nearly a quarter of a million persons — equivalent to almost two in every three (63.1 %) of the total number of persons employed.

From this general analysis of the water sector, it is possible to quantify the total amount of possible and potential users for both the WISDOM IS for water management and possible customer for the services offered with it.

In order to estimate the potential companies that could be interested in the product, the following analysis is focused only on three regional markets: Italy, France and United Kingdom. Those countries are selected because pilots for this project and for the first three years of commercialization it will be easier for the consortium partnership reach these companies due to their geographical localization.

Those markets are complicated and have different characteristics.

In France, there are 13 hydrographic districts: 8 in France and 5 in DOM-TOM. There are water agencies in each district to manage the water with the economic development and environment respect. Whereas the

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responsibility for water supply and sanitation services lies at local level, the State plays an essential regulation role at national, regional and «département» levels. The State ensures social solidarity, guarantees access to water for everyone and sets standards for the protection of environment, public health and consumers. The State also establishes the general rules for managing services: local authorities’ responsibility, competition between operators, monitoring of service quality. In France, the “départements” play an important role. This country includes large companies that are active in France, with subsidies or collaborators in Italy, Spain and in Central Europe, as well as a small presence in other countries. Fédération Professionnelle des Entreprises de l'Eau - FP2E - now represents nearly all private companies managing water and wastewater services both inside and outside of France, where its members (Alteau, Lyonnaise des Eaux, Nantaise des Eaux Services, Saede, Saur, Société des Eaux de Fin d’Oise, Sogedo, Veolia Water) employ around 130,000 people, of which 32,200 work in France. These companies supply water to 46 million people and treat the wastewater of 28 million people in France.

In the UK, unlike the other EU-Member Countries, water is split into three geographical and decision-making markets: England and Wales, Scotland and Northern Ireland. The 3 UK water markets are organized around an economic regulator, monitoring tariffs and return of capital of water and wastewater operators, but having no power on contracting services. Whilst England & Wales are privatized markets, Scotland and Northern Ireland are public owned (by Scottish Water and Northern Ireland Water, respectively) Water UK represents almost all UK water and wastewater service suppliers for England, Scotland, Wales and Northern Ireland, providing a framework for the water industry to engage with government, regulators, stakeholder organizations and the public. Working for the public benefit for a clean, green and sustainable world, CIWEM (The Chartered Institution of Water and Environmental Management) is the only independent, chartered professional body and registered charity with an integrated approach to environmental, social and cultural issues.

In Italy, the Italian Integrated Water Supply system shows a very complex landscape. Italy’s water main and wastewater treatment plant network is very heterogeneous. The current Italian regulatory framework is the result of different factors as, a long way of attempts to liberalize and modernize the integrated water service (SII) made by various governments over the last two decades, the transposition of the European Water and Waste Water Directives (Directive 2000/60/EC and Directive 91/271/EEC) and the public referendum made in the 2011 that delayed compulsory water services privatization and the guaranteed return on investment for water utilities. An important role is played by AEEG in collaboration with the Ministry of the Environment. The analysis of Italian water utilities financial statements and websites demonstrates that the majority of the utilities provides only the water services (mono-utilities) and not other ones such as electricity, gas, or municipal waste management. As indicated by AEEG, in Italy operate 1.235 independent firms and public bodies in field of water services provision. The 75 % are municipalities or other public bodies (such as consortia of local governments or mountain communities) that provide one or more water services directly “in house.”

Around the 79 % of local governments that provide water services directly are located in the North, mainly in Lombardia and Trentino Alto Adige, instead in regions as Basilicata, Friuli Venezia Giulia, Puglia, Sardegna, Umbria and Veneto no municipality or public body provides directly water services. In order to complete the picture, it is important underline that, more than 10 years after the water quality legislation (Italian Decree 31/2001 enforcing Directive 98/83/CE) came into force, some regions are still not complying with the stringent drinking water requirements prescribed.

Starting from these premises, in the following list, it is possible to see how many enterprises there are, according to EUROSTAT.

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The total amount of the companies is pictured in the graph and the number is 7,229. Both Section E 36 and section E 37 are considered. Companies are distributed as follows between the three considered countries.

Figure 4 Figures related to Section E 36

Figure 5 Figures related to Section E 37

In order to understand how many companies could be interest in the WISDOM IS and in particular in the correlated services, it’s important keep in mind that most of water companies already use their proprietary software for water management, metering and other functions supplied by a local or software international expert. It’s not evident who are the leading companies, but most software companies offer water-related software carry this software as smaller part of a wider software and activities portfolio. The competitive scenario is particularly interesting and full of companies for example ABB, General Electric, IBM Corporation, Itron, Schneider Electric, Arad Group, Elster Group, SE, Sensus, Siemens, Takadu, Capagemini, Accenture, Aqualogic, Oracle, KPMG but also companies as Aqualogic specialized on leak detection services.

3.2. Product description

According to the previously presented business model, this section recaps the WISDOM value proposition. As presented before, WISDOM, is an information system (IS) that targets optimized water resource management.

Together with the software, WISDOM incorporates a Reference Architecture, an Implementation and a suite of loosely coupled Analytical Services. Those elements are provided by the different partners and cover a wide range of different costumer possible necessities, like:

leakage detection;

leakage localization;

pump optimization;

water disaggregation;

consumption visualization.

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The problem that WISDOM IS, as an open souce platform, tries to solve is a familiar one – ‘by combining Information & Communication Technologies (ICT) targeting data Acquisition & Analytics, one can inform Actions that have real value for the target domain’. As suggested, the research of WISDOM focuses on generating ‘Analytics’ based domain insights. Traditionally, in order to ‘Act’ on such insights or indeed to ‘Acquire’ the data on which such insights are based, it has been necessary that stakeholders & information systems have appropriate access to accurate data in near real time. However, this has proved a typically onerous task, as heterogeneous data formats, application integration costs & batch processing times inhibited the free flow of accurate & timely information amongst systems. Then additionally, the valuable services, mentioned before, are a key element in the WISDOM value proposition, being the only revenue and also attracting new users to the platform who wish to take advantage of these services.

3.3. Sales Forecast

Starting from this assumption, the following table attemprs to explain which could be the forecast. As it is possible to see, the forecast is in a short medium term (from 2018 to 2020) and it includes the possible revenue for all the services. All the forecasts that follow start from 2018 because the remaining months of 2017 are used to validate the project. It is possible for the potential customer to purchase only the services and use it through his own software.

Those percentages try to reflect the different contexts in which the water utility companies work and their total amount. For example in England, all the market is led by private companies that can take decisions independently; the situation is different in Italy, for example, where the municipalities have more power.

The first tab shows the possible percentage of market penetration, the second tries to analyze how much WISDOM services could be sold on average and the number of companies involved. The services cost 5.000€ each per year.

Table 1 Possible % of market penetration

SERVICES 2018 2019 2020

Italy 1% 1,5% 2%

French 2% 2,5% 3%

UK 1% 1,5% 2%

Table 2 Possible Market penetration in terms of number of companies and services sold on average

SERVICES

2018 2019 2020

N of services

sold (average)

N of company involved

N of services

sold (average)

N of company involved

N of services

sold (average)

N of company involved

Italy 2 23 3 34 3 45

French 2 79 3 99 3 119

UK 2 10 3 15 3 20

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3.4. SWOT

The following SWOT is based on the different elements that WISDOM and the related services can offer to the market.

Strengths Weaknesses

- Customizable, Scalable and secure share meaning product

- Extensible architecture that supports integration of new data sources and services

- Secure exposure of data & services - WISDOM Services developed within WISDOM

as well as third party services (CMR tool in SAT) - Pragmatic approach (system design

requirements that included multi-ownership, legacy systems, cost sensitivities, security, privacy and reliability)

- Hybrid architecture, whereby edge & cloud processing are utilized

- Ability to integrate with 3rd party services - Ability to be extensible to new data sources

- Hard to sustain large market growth over short time for new player

- Difficulties in reaching the potential customers for sell the services

Opportunities Threats

- Large market potential: Smart Water Solutions should grow from USD 8.4 Billion in 2016 to USD 20.10 Billion by 2021

- Different unfulfilled market needs: - leakage, non-revenue water and smart water

technologies - water tariffs and cost recovery principle - Water loss prevention - Green treatment plants - Metering accuracy and automation - European and National Incentives deriving

from Industry 4.0 plan. - Customer values, more customers are

becoming informed about the impact that individual and collective choices have on the one planet that we inhabit

- Ageing infrastructure, monopolizing investments

- Climate change, stressing even more investments

- Existing providers may develop similar products

- Some competitors have a good position on the market

- Dependence on other open source technologies

- Difficult and large competitive scenario.

3.5. Risk Assessment

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The WISDOM offer does not depend on just one or two main customers and we see no major risk of the demand of the service decreasing. As described elsewhere in this Business Plan, the water industry could benefit from our solution.

There are no regulatory issues but legally the ownership of the private data captured is defined and agreed with the customers and end-user (managed by the contract templates). Legal and liability issues that the service may be subject to are handled (as normally) by a disclaimer.

As for the risks associated to developing competitor markets: few direct competitors are found and also existing providers could decide to develop similar services.

We think in that case we can have a competitive advantage due to the high level of interoperability and integrability with existing platforms WISDOM offers, as well as providing added value services.

Another identified risk is related to market factors. In fact, the performance could be lower than market needs, the product could be too expensive and some problems could occur at the time of market penetration. A rigorous execution of the Business Plan, having qualified employees and adequate financing are the best measures for securing the business.

3.6. Financial Figures

Regarding the costs that the service provider has, they concern different elements. First of all the human resources, like commercial agents who find possible customers, and technicians who built and maintain the structure offered. At the same time in the voice are included developers, customer services and marketing staff.

On the other hand, the consortium has operative and maintenance costs because of the ICT infrastructure. Also data collection and storage have to be mentioned. It is possible that also the testing activity could burden costs and also marketing and administrative activities.

Table 3 Human Resouces involved

Human Resources 2018 2019 2020

1 Senior

2 Technicians 1 Senior

2 Technicians 1 Senior

3 Technicians

- Human resources: annual salary senior 125.379€, annual salary technicians 48.821€ - ICT infrastructure: 50.000€ - Data collection and testing activity: 70.000€ - Marketing and administration costs: 40.000€

The total amount of the costs, per year, are shown in the following table.

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Table 4 Costs to be sustained for the first 3 three years of commercialization

COSTS 2018

Human Resources 223.021 €

ICT infrastructure 50.000 €

Data Collection and Testing Activity 60.000 €

Marketing and Administration 40.000 €

TOTAL 373.021 €

COSTS 2019

Human Resources 223.021 €

ICT infrastructure 55.000 €

Data Collection and Testing Activity 70.000 €

Marketing and Administration 55.000 €

TOTAL 403.021 €

COSTS 2020

Human Resources 271.842 €

ICT infrastructure 60.000 €

Data Collection and Testing Activity 75.000 €

Marketing and Administration 60.000 €

TOTAL 466.842 €

On another level it is important to also estimate the possible revenue stream. In fact, end users (e.g. water companies, smart sensor providers, etc.) can register at the “WISDOM Platform” and be able to use the available services and third party developers could add their tools developed on the WISDOM platform. Summarising, the possibilities of revenue streams as income come from the selling of the service.

As shown below the expected revenue are:

in the first year €1.118.500,00;

in the 2019: €2.219.925,00;

in the third year of work: €2.762.100,00.

This particular number comes from the analysis of the company’s volume that WISDOM should involve. The following analysis attempts to explain where the total revenue comes from. The analysis is structured in the three years considered and for the total amount of services sold.

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Table 5 Revenues related to 2018

Table 6 Revenues related to 2019

SERVICES Revenue

Italy € 506.925,00

French € 1.483.500,00

United Kingdom € 229.500,00

TOTAL € 2.219.925,00

Table7 Revenues related to 2020

SERVICES Revenue

Italy € 675.900,00

French € 1.780.200,00

United Kingdom € 306.000,00

TOTAL € 2.762.100,00

3.7. ROI

With the purpose to understand the efficiency of an investment, the Return on Investment performance measure is used.

It is important to underline that all the analysis is based on the forecast and numbers explained before.

The formula used is easy to understand and tries to enlighten if the business is profitable and can guarantee a long-term sustainability.

Return of Investment (ROI) is given by the relation between Net Income and Investment.

SERVICES Revenue

Italy € 225.300,00

French € 791.200,00

United Kingdom € 102.000,00

TOTAL € 1.118.500,00

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Net income is the result from the difference of gross profit and expenses. In this specific case, this value for the first year is equal to € 745.479,00€.

Net income = (€ 1.118.500,00€) Gross Profit – (373.021 €€) Expenses

Investment = (373.021 €) Total costs

ROI= (745.479,00€) Net Income / (373.021 €) Investment

The result for the first year is 2,00.

If this calculation is also made for subsequent years, the results are as follows:

• ROI second year: 4,51 • ROI third year: 4,92

This numbers means that business can be considered sustainable because the capital invested by the consortium, in terms of costs incurred, generate two times its value in terms of revenue, for the first year of activity.

In conclusion, with this information it is possible to understand that business can be considered profitable. This profitability increases in time as the Return on Investment grows to 4,92 in 2020.

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4. CURRENT MARKET NEEDS AND EXISTING BUSINESS MODELS RELATED TO

WATER UTILITIES AS MAIN END-USERS

According to the 5.6 task description in DoW but especially in order to better understand the sector and market framework in which WISDOM-as-a-Service Business model will have to operate, it was necessary to perform an in-depth analysis of current market trends and the current market needs of water utilities that will be the main WISDOM-as-a-Service end-users and their business models.

4.1. Market Framework: Global Smart Water management

According to a Frost and Sullivan Research, the global water market value is around US $425 Billion, this value is generated by the key activities shown in Figure 6, constituting the global value chain as well as its subdivided segments, as shown in Figure 6 and Figure 7.

Figure 6 Global Water Market Value and related Key activities across the value chain (Source Forst & Sallivan)

Figure 7 Global Water Market Value by Segments (Source Forst & Sallivan)

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In framework of Global water Market, the Figure 8 shows the Key Global Water Growth Drivers.

Figure 8 Key Water sector Drivers (Source Forst & Sallivan)

In this context, it is clear that Smart Water Solutions developed in the last years are set to completely change the management methods across the whole of the Water Cycle.

Figure 9 Real time monitoring and management of Services along the Water Cycle (Source Forst & Sallivan)

The Main Key drivers of the smart water revolution are shown in Table 3.

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Table 3 Key drivers of the smart water revolution

Area Driver

Economic Cost of energy

Water use inefficiencies

Technological ICT integration

Increased granularity

Exposed relationships

Social Urbanization

Globalization

Access to Information and Water

Environmental

Water scarcity

Resilience to climate change

Increased demand

Carbon footprints

Political

Efficiency

Innovation

Accountability

Sustainability

Markets and Markets study, forecasts that the global Smart Water Management market size will grow from USD 8.4 Billion in 2016 to USD 20.10 Billion by 2021, at a Compound Annual Growth Rate (CAGR) of 18.9%.

This data is backed up by the Smart Water Grid Market data of Frost & Sullivan, in fact they predict that the market size of this sector is expected to grow from USD 8.7 Billion in 2015 to USD 22.2 Billion by 2020, with a market penetration on conventional Water grid market of 29%. Figure 10 shows Smart Water Grid Regional attractiveness by regions.

Figure 10 Smart Water Grid market Regional Attractiveness by Region (2010-2020) (Source: Markets and Markets)

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Ageing infrastructure and restricting non-revenue water losses are some of the key factors driving the smart Focus on European Market

4.1.1. General Market trends and needs

In Europe, many water utilities are integrating advanced ICT solutions into their operations. Smart water metering will help to identify and reduce leakages and non-revenue water, creating a European market worth up to $13.4 billion by 2020. In addition, most European water utilities have adopted advanced solutions for areas such as pressure management, advance meter data analytics, network monitoring, and leakage detection4.

The EU’s 20-20-20 project states that by year 2020 around 80% of the household meters will be replaced by smart meters and the absolute roll-out will be accomplish by 2022. This roll-out of smart meters is expected to drive the European smart water market, with countries like the U.K., France, Germany being the potential leaders for smart water grids. The eastern European region is expected to have slower growth in this market. The water and wastewater industries, like many others, are currently undergoing a process of transformation through the use of ICT and near-real-time data generation. The aim is to increase operational and management efficiencies, to reduce expenditures and carbon footprint through the use of smart water metering while improving customer service and supply management This will be achieved through identifying end point leakage at a localized neighborhood level, gaining clarity between leakage, non-revenue water (NRW) and chargeable consumption, establishing consumption patterns and using predictive analytics to regulate supply and setting up adjustable alarm notifications to predict/prevent end-point anomalies.

In this context, in Europe smart water metering industry is expected to generate a cumulative investment of US $7.8 billion by 2020 (Figure 11) for meter manufacturers, installers and data and network management companies. Of these segments, the largest to represent long-term, sustainable value is data and network management (Figure 12). While initial investments are heavily in smart water meters and installation fees, data and network management quickly grows to provide the most of revenues for this market segment. Further revenue for meter manufacturers and installers will come from timely replacement and upgrading of meters. Regional and global backdrops of economic uncertainty and increasing environmental pressures only serve to enhance the attractiveness of smart water metering. Furthermore, there has been a mandated rollout of water meters in Ireland, a condition of the European Union and International Monetary Fund bailout. This adds weight to water metering as a driver for equitable long-term revenue generation. Smart water metering is an extension of this, providing greater accuracy, justification and enhanced management of water utilities5.

4 http://www.waterworld.com/articles/wwi/print/volume-26/issue-5/regulars/creative-finance/smart-water-metering-networks-an-intelligent-investment.html 5 http://www.waterworld.com/articles/wwi/print/volume-26/issue-5/regulars/creative-finance/smart-water-metering-networks-an-intelligent-investment.html

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Figure 11 Smart Water Meter Penetration, 2007-2020, 2030 (Europe) (Source Forst&Sallivan)

Figure 12 Smart Water Metering Market Attractiveness by Vertical Market (Europe) (Source Forst&Sallivan)

Data and network management has a real opportunity to grow in depth and sophistication for water utilities. Solutions for billing, customer service, asset management and modelling will become more advanced and offer a greater depth and accuracy in analytical ability. It is also expected that services will grow in scope, to work with and manage other water utility IT needs – some of which are likely to be uncovered as the industry grows in its understanding of how IT solutions can help water utilities.

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The necessity for water utilities to adopt smart water metering is clear and the resulting market opportunity for meter manufacturers, installation companies and data and network management business has been carved out. This is a growing market not without questions and debates that will gradually be worked out, but in the current climate of carbon footprint reduction, economic uncertainty, environmental stress, water scarcity and the growing awareness of the costly relationship between water and energy use, smart water metering stands out as a contributing solution to each point. In addressing the breadth of this market, various strands of business that may have had little to do with each other a decade ago now find themselves increasingly in partnership. This presents a large and growing source of industry convergence.

Water utilities, smart water meter manufacturers, installation companies, communications network and telemetry providers, meter data and network management firms, cyber security businesses and others are building partnerships and merging to provide smart water metering solutions rather than leaving water utilities to manage a host of different contributors to its smart meter grid. Much growth will be secured through proactive companies that position themselves centrally in this industry convergence as smart water metering specialists.

4.2. Focus on Water utilities market needs

Water utilities have been interested with the idea of integrated water cycle management (IWCM) for over a decade. Integrated water cycle management calls for integrating the objectives of water, wastewater and storm water services rather than treating them separately. An example of this is meeting some water demand especially non potable supplies by capturing and cleaning the wastewater to the required water quality, and not looking upon them as waste flows to be discharged.6 There are multiple factors that are driving the water utilities market towards smart water management. Key drivers can be outlined as:

1. Ageing infrastructure: Most utilities are managing ageing assets, some of which are100 or more years old. This means that there are billions of euro’s worth of water infrastructure that is awaiting replacement and renewal in the next few decades. This poses a challenge to the conventional cost recovery model of urban water utilities which relies on customer bills as a single source of revenue to recover its capital investment.

2. Climate change has brought with it extreme weather events. Long spells of drought, impact the security of water supplies while frequent and more intense storm events stretch the capacity of sewerage infrastructure. Both result in direct impacts in the form of disruption to continuity and quality of water services that customers have come to expect of water utilities.

3. There are also indirect impacts of climate change on water services. For example, intense storm events that follow long spells of drought tend to result in high spikes of turbidity within the raw water source, stretching the capacity of water treatment plants that source raw water from surface water. Any capital fixes to mitigate the risk only adds to the already exorbitant capital investment that is anticipated on account of ageing assets.

6 Business model of water utilities by Sydney water company

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4. Customer values, more and more customers are becoming informed about the impact that individual and collective choices have on the one planet that we inhabit. As a result, there is a steady growth in number of “prosumers”. Prosumers are defined as proactive consumers who are diligent in their consumption of resources7.

As a consequence of the above cited market key drivers the Water Utilities have some key efficiency priorities.

These priorities are described as follows:

Energy efficiency and production. The total electricity consumption of 10,000 urban wastewater treatment plants in 2009 was roughly 4,400 GWh/year in Germany and in the United Kingdom, the energy use by the water industry rose to 9,012GWh in 2009-20108. This represents a 10% increase over the previous 8 years. As energy prices continue to rise there is a major implication to the water industry for the energy it consumes. Currently 28% of a water utilities operating cost is energy consumption. Within this pumps account for up to 60% of energy needed for water distribution and aerators consume 55% of energy used in wastewater treatment. While this exemplifies the importance and dependence of water utilities on pumps and aerators, it also exposes specific targets for greater efficiencies in energy consumption. The sixth World Water Forum sets a target of 20% reduction in water utility energy use. Therefore innovations that help reduce energy consumption will have direct relief for utility budgets. The complimentary advancement is to see wastewater treatment plants and water distribution networks as untapped sources of energy. The wastewater to energy movement has very strong potential to reduce energy demands and carbon footprint, to reduce waste volumes and to move further towards net zero energy and energy positive water utilities.

Leakage, Non-Revenue Water and Smart Water Technologies. Water leakage across the European region averages 22.2%. This means that almost one quarter of billable water is lost producing both financial and environmental consequences resulting sometimes in highly inefficient water distribution networks. Considering the total length of water distribution and wastewater pipes, almost 1.2 million km in France alone, there is a vast pipe surface area and geography to monitor for leaks and bursts. To help reduce leakage, water utilities will continue phased pipe replacement schemes and prioritise the urgent replacements as they appear. Ongoing replacements, however, are likely to use enhanced materials, such as polyphenlyether, and coatings to ensure pipe longevity and install acoustic and other sensors to detect leaks and limit burst events. Installing sensors and data communicating devices in water networks to produce near-real time control is the essence of smart water technologies. A key factor that increases the attractiveness of smart water technologies is that it is not requiring a fundamental reconfiguration of water industry processes, but instead enhances and makes more responsive system operations and management. By installing sensors and telemetry to key points of water utility infrastructure, data is produced and transmitted to central servers where algorithms and analysis generate information, relationships and indicators to enhance the decision-making process. Data analysis and information production can be handled internally by water utilities, but increasingly

7 Consumer available to the install at home smart meter and available to use water disaggregation tool in order to have a direct control

of real water consumption. 8 http://www.waterworld.com/articles/wwi/print/volume-27/issue-4/regulars/creative-finance/water-utility-efficiency-priorities.html

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options for software-as-a-service are emerging. Outsourcing data management can enhance the drive for operation efficiencies of water utilities.

Water Tariffs and Cost Recovery Principle. From 2003 to 2011, water charges have increased an average of 4.8%. Rates by country, however, vary widely, with Germany home to the highest charges through implementation of full cost recovery. Water tariffs are a controversial tug-of-war between essential rights of public access and the full cost of recovery principle, to not only cover operating costs but enable sustainable investment for the future. Unlike other utility commodities of electricity and gas, water is a prerequisite to life and as such must remain affordable to all. This understanding often keeps the cost of water low and below market rate through public subsidies. As service costs rise (through regular inflation, necessary investments, stricter legislative requirements and inefficiencies) the costs must be borne by customers or further paid for through subsidisation. Considering the tough financial situation faced by many water utilities in Europe, the cost of water for customers is set to increase over the coming years. Going forward business models will need to change to ensure water charge rises are aligned with the cost recovery principle and better appropriately communicated to the customer.9 An example in this sense is constituted by the Dwr Cymru glas business model10, this model, in fact, aims to reduce Welsh Water’s asset financing cost, financing the Welsh Water's assets and capital investment through bonds and retained financial surpluses. This model based on Financing efficiency savings allow to preserve Welsh Water and its customers from any unexpected costs and also to improve credit quality.

The WISDOM as - a - service, as described in the Value proposition section and show in Figure 2 and Figure 3 can provide to the water utilities different services as pumping optimization, leakage localization and detection, water disaggregation and consumption visualization by smart meter monitoring. All these services directly have an impact on the Water Utilities key priorities. In particular, the pumping optimization service allows to reduce the energy consumption and as consequence saves costs, the leakage localization and detection services allow the water utilities to intervene in efficiently way to solve the water loss and as a consequence to decrease the impact of Non-Revenue Water, water disaggregation and consumption visualization allow to have a effective control on water consumption of customers and could be useful to implement an adaptative pricing model.

The Table below summarizes the potential impact (the score ranged from Low to High) of the adoption of WISDOM as a service on key efficiency priorities of water utilities:

9 http://www.waterworld.com/articles/wwi/print/volume-27/issue-4/regulars/creative-finance/water-utility-efficiency-priorities.html

10 http://www.dwrcymru.com/en/Company-Information.aspx

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Table 4 WISDOM impact on Water utilities Key priorities

Low Medium High Comments

Energy efficiency and production By pumping optimization

service

Leakage, Non-Revenue Water and Smart Water Technologies

By leakage localization and

detection services

Water Tariffs and Cost Recovery Principle

By water disaggregation and consumption

visualization and by pumping optimization

service

4.3. Water Utility existing business model analysis

For any urban water utility to continue being relevant, they have to meet the demands of the changing climate and changing customer values and needs. Doing so poses a challenge to the conventional business model of the water utility. That is because the conventional water utility business model is based on assumptions that are becoming less relevant to the current realities and context.

The current business model of most water utilities is based on the following assumptions:

1. Water service needs of the future can be met by simply extending the (existing) pipes and amplifying the (existing) pumps and treatment processes. This implies incremental capital investment to meet growth and renewal.

2. Water utility is the agency that has sole responsibility of providing water services. Implying that all the costs need to be shouldered by the utility and recovered from its bill paying customers.

3. Scope of products and services of water utility is limited to: Producing & supplying safe drinking water for all drinking and non-drinking uses to the

customer properties; Collecting and conveying wastewater from the customer properties to the treatment facilities

and discharging safely into the environment; Managing wet weather overflows in the wastewater network; Managing the odour & corrosion issues in the large centralised network systems that have

expanded over the past decades; Maintaining the infrastructure that enables providing the services.

4. Customer bills and developer contributions are the key sources of recovering the cost.

5. In the case of water utilities that are owned by government entities, any profits made through cost efficiency is not returned to the utility for investing back into its business.

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In order to enable water utilities to make any progress to improve the quality of services it provides, it is critical to renew the business model of water utility. In order to renew the existing business model it needs to define new assumptions starting from the redesign of the goal of water utility services:

1. In addition to supplying the traditional water and wastewater services, goal of water services have to include providing master planning services to enable developments, reuse and recycle the water for creating green places and reduce the portion that is discarded as waste.

2. Water services are not only for human consumption (drinking and non-drinking) & public health but also for creating common shared places within a urban area such as irrigated green spaces, green roofs and green walls. Therefore enabling such shared amenities over and above the basic public health needs is well within the scope of water services.

3. The assets and infrastructure built and operated by a water utility may be primarily helping to provide the water related service.

4. The cost of providing new water services that are benefitting greater good of the community and environment should be partitioned amongst the stakeholder agencies and customers in proportion to the benefits they receive & value.

5. The price of water services to bill the customer must be estimated based on the net cost of services after deducting the costs that can be recovered from contributions of various stakeholder agencies.11

The use of WISDOM-as-a-Service could be an important tool for the Water utilities in order to improve or change their business models, in fact, it can be useful to improve the management of existing services and infrastructures but also for the creation of new services.

WISDOM-as-a-Service due to the possibility to enable a wide range of services (as leakage detection and localization, pump optimization, water disaggregation enabling the effective consumption monitoring, consumption visualization as well as CSO spill prediction etc…) have impact on all aspects and assumptions described above that are the basis for the process of redefinition of water utilities business model.

11

https://www.linkedin.com/pulse/business-model-water-utilities

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5. REVENUES GENERATION MODELS AND SAVING SCHEMES FOR WATER UTILITIES

Once again according to the 5.6 task description in the DoW but especially in order to better understand the framework in which WISDOM-as-a-Service Business model will have to operate, it was important also understand the revenues generation models and the saving schemes used by the water utilities in order to contain the costs.

5.1. Revenue generation for water utilities

Water and wastewater utilities generation model revenues are divided into operating revenues model and non-operating revenues model. Operating revenues are revenues derived from the various operations of the water system, including revenues from the sale of water and collection of wastewater for all customers; connection (tap) fees linked to actual installation costs (as opposed to system development charges to cover system capacity); customer fees and penalties assessed for account changes, disconnections and reconnections, late payments; ad valorem taxes; power generation sales; rents from water system property; and all other revenues that are incidental to water operations .

Non-operating revenues are revenues that do not derive from the operations of the water system itself, including interest and dividends on investments; revenues from system development charges or capacity fees; rents from nonutility property; and provision of services to other organizations

Investor-owned utilities report their operating and non-operating revenues in annual reports to their shareholders, and local government-owned utilities typically report their financial performance in an audited Income Statement following guidance set by the Governmental Accounting Standards Board. All income statements contain data on utilities’ operating revenues, operating expenses (primarily expenses for operations and maintenance, plus depreciation and amortization), and non-operating revenues and expenses (capital expenditures and/or debt service payments).

Customer sales can be divided into two general categories: fixed revenues that are not dependent on a customer’s water use or wastewater collection, such as the revenues obtained from the monthly base charges, and variable revenues that are explicitly linked to the volume of water used or wastewater discharged by the customers (usually industrial customers), derived from the volumetric charges. The balance between fixed revenues and variable revenues is unique for each utility, based on rate structure design, pricing levels, and base charges, and on the water demand of the customer base12.

5.2. Saving schemes for water utilities

Research into the construction industry shows that lower energy and operating costs are the top two reasons owners are incorporating water efficiency into projects. The basic disciplines are the same in saving water and saving energy:

12

AWWA 2012.

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• Identify and fix the sources of waste. • Install more efficient equipment. • Add automation and controls where possible. • Improve maintenance and operating practices. • Measure results and establish continuous improvement strategies. • Educate users and change wasteful behaviors.

An effective efficiency program follows a continuous cycle: measure, manage, monitor, report. Here are several basic ways in which water providers and users can reduce water consumption, increase efficiency in systems that distribute and use water, and in general employ sustainable practices related to water utility system optimization13:

Water loss prevention. Municipal utilities can lose substantial water – from major pipe bursts or from slow, persistent leaks. A good starting point for optimization is to perform a “water balance” – an accounting of all uses. Data from a water balance can drive water conservation, water reuse and water loss control initiatives. An optimization program then can include measures such as ongoing leak detection and repair, pressure management, metering of usage with the correct meter types and sizes, Advanced Metering Infrastructure (AMI), periodic meter testing, and system wide review of service and business operations.

Green treatment plants. Many water and wastewater treatment plants waste substantial energy. Energy conservation and operational changes can cut energy consumption by 10 to 30 %. In addition to traditional HVAC, lighting, building automation systems and domestic water use improvements, water treatment plants can be improved with high efficiency pumps throughout the process. Wastewater plants can benefit from high efficiency lift pumps, aeration system improvements, and combined heat and power systems using digester gas. Both kinds of plants can deploy wind and solar energy systems.

Metering accuracy and automation. One of the best ways to help fund efficiency and sustainability initiatives is to maximize revenue from water delivered to customers. Automation programs, such as AMI, replace old meters with new and properly sized units that record usage accurately and often enhance a utilities ability to use data to detect and address leaks and other anomalies. Automation saves the labor, fuel, inaccuracies, and other costs of manual meter reading. Automated reading systems that upload usage data directly to billing systems also make it feasible to bill customers more frequently, improving cash flow. More frequent and accurate data also enables faster detection of anomalies and better customer service.

The WISDOM-as-a-service due to its unique selling point characteristics could be applied by the water utilities in order to make effective all possible sustainable practices related to water utility system optimization. In particular, the leakage localization services enable by WISDOM can help the water utilities to prevent water losses, pumping optimization and leakage detection can be applied to improve the efficiency of treatment plants and water disaggregation and consumption visualization can be useful to improve metering accuracy and automation. The Table below summarizes the impact of the adoption of WISDOM-as-a-service on possible optimization saving measures (the score ranged from Low to High).

13 White Paper Savings Multiplied: Conserving Water and Energy to Maximize Efficiency and Reduce Emissions by Johnson control

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Table 5 Impact of WISDOM on water utilities saving actions

Low High Comments

Water loss prevention. By leakage localization

services

Greening treatment plants.

By pumping optimization and leakage detection

services

Metering accuracy and automation.

By water disaggregation

and consumption visualization

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6. PROCUREMENT MODELS OPPORTUNITIES FOR WISDOM–AS–A-SERVICE

In the framework of public procurements currently there is an existing procurement structure already applied to the water sector that could be a very attractive opportunity for WISDOM as a service. This type of procurement is called Innovation procurements and is useful to deliver solutions to challenge public interest in this field of ICT and can play a major role. The innovation procurements can be divided in two main groups:

Public Procurement of Innovative solutions (PPI) used when challenges can be addressed by innovative solutions that are nearly or already in small quantity in the market and don't need new Research & Development (R&D) to prove the product or service.

Pre-Commercial Procurement (PCP) used when there are no near-to-the-market solutions yet and new R&D is needed. PCP can then compare the pros and cons of alternative competing solutions approaches. This will in turn enable to de-risk the most promising innovations step-by-step via solution design, prototyping, development and first product testing14.

Figure 13 PCP vs PPI

The Table below summarizes the main differences between PCP and PPI.

Table 6 Differences between PCP and PPI (source Smart PCP)

PCP PPI

When?

Challenge requires R&D to get new solutions developed. Problem clear, but

pros/cons of several potential competing solutions not

compared/validated yet. No commitment to deploy (PPI) yet.

Challenge requires solution which is almost on the market or already on the

market in small quantity but not meeting public sector requirements for

large scale deployment yet. No R&D involved (R&D already done, or no R&D

needed to solve problem).

14 https://ec.europa.eu/digital-single-market/en/innovation-procurement

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What?

Public sector buys R&D to steer development of solutions to its needs, gather knowledge about pros/cons of alternative solutions, to avoid supplier lock-in later (create competitive supply

base).

Public sector acts as launching customer / early adopter / first buyer for

innovative products and services that are newly arriving on the market (not

widely commercially available yet).

How?

Public sector buys R&D form several suppliers in parallel (comparing

alternative solution approaches), in form of competition evaluating progress

after critical milestones (design, prototyping, test phase), risks and

benefits of R&D (e.g IPRs) shared with suppliers to maximize incentives for the

wide commercialisation.

Public sector acts as facilitator establishing a buyers group with critical mass that triggers industry to scale up

its production chain to bring products on the market with desired quality / price

ratio within a specific time. After potentially a test and/or certification,

the buyers group purchases a significant volume of products.

The European, National and Regional contracting authorities can act as a launch platform for innovative services not yet available on market or on large scale commercial basis. This has several advantages:

By acting as the first buyer or lead customer, a contracting authority can boost new markets.

The public benefits directly by being offered new and innovative public services that are provided in a more cost-efficient and effective way.

PPI and Pre-Commercial Procurement can lead to scientific and technological breakthroughs in areas such as health and well-being, food security, sustainable agriculture or clean & efficient energy and water.

The development of an innovation procurement strategy that uses PCP and PPI in a complementary way, can on one hand allow the public procurers to drive innovation in different sectors and can enable the public sector to improve public services in an efficient manner, and can on the other hand create opportunities for companies in Europe to gain leadership in new markets.

The main beneficiaries of PPI and PPC are public procurers (e.g. open call offering co-financing, best ideas selected for public sector challenges that would generate maximum quality or efficiency improvement for region if solved by innovations) and the main target group: public sector (improved quality/efficiency) and enterprises (business opportunities). Actually, different European procures (Italian, French and Netherlands), already participate the WATERPiPP networking project about innovation procurement in the water sector.

In particular, analysing the characteristics of PCP and PPI procurements, the system developed as it is in the framework of WISDOM project could have added value to answer to PCP in water sector promoted by different European procures.

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CONCLUSIONS

This report is the summary of the activities carried out in framework of Task 5.6 “Market Needs and New Socio-Economic Business Models for Efficient Water Management in WISDOM”.

Despite the restrictions placed upon us in having no partner within the consortium in a position to exploit the WISDOM business model, the market trends and needs has been analyzed, confirming the rising interest on innovative Water Management Systems and services driven to the needs of water utilities on improving efficiency of existing infrastructure and on modifying their business models in order to save costs and release new services.

External factors have been also analyzed identifying economic and technological aspects the most influencing the future commercialization of WISDOM.

An analysis of new public procurements models (PCP and PPI) has been also performed, identifying the PPC model as a good opportunity for the promotion and further development of WISDOM solution.

The WISDOM Business Model has been defined considering the WISDOM–as-a-service the best value proposition to be adopted in order to address the identified market and customer’s needs.

In particular, it was highlighted how WISDOM platform would be the new “App Store” for Water domain and being an platform able to stimulate ICT water management innovation by allowing third Parties to develop new services.

The Business Model canvas was the tool adopted, to better identify the actors involved, the relationships and the actions foreseen.

Finally, with the aim of making a complete analysis, a practical Business Plan has been presented. Through this instrument, presented only for Italy, France and United Kingdom, it was possible to emphasize the strengths and weaknesses of WISDOM and to understand the potential and opportunities that this market can offer.

Both the WISDOM IS and the services related respond to the market needs and offer to the customer an added value: that is why this tool has been useful in order to understand that this business and the commercialization of the services could be sustainable and profitable.

The profitability of the business is demonstrated by the value of the Return Of Investment. In fact, during the first year of commercialization, the capital invested by the consortium generate two time its value in terms of revenue. This profitability increases in time as the Return on Investment grows up to 4,92 in 2020.

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ANNEX I: BUSINESS MODEL METHODOLOGY

Introduction to the Business Modelling

The Business Model (BM) concept is quite recent. The diffusion of the term has involved at first start-up companies (Jouison 2005) and, afterwards, the other industrial categories: in 2005, about 27% of the companies present in the top 500 chart of Fortune has used such term in its yearly report (Shafer et al. 2005). Business Model definitions are different and can vary both in the structure and the contents.There are synthetic definitions as:

“the organisation's core logic for creating value” (Linder eCantrell 2000);

“a story that explains how an enterprise works” (Magretta 2002);

“the way we make money” (Bienstock et al. 2002);

And more structured and articolated definitions as:

“an architecture for the product, service and information flows, including the various business actors and their roles; a description of the potential benefits for the various business actors and a description of the sources of revenues” (Timmers 1998);

“a conceptual tool that contains a set of elements and their relationships and allows expressing a company's logic of earning money. It is a description of the value a company offers to one or several segments of customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value and relationship capital, in order to generate profitable and sustainable revenue streams” (Osterwalder et al. 2005).

In general “business modeling” foresees a representation – also known as “business model” – of the logic that is used by a company to create a value pro position for the Client, to make it and to gain a part of the economic value generated.

Business Model Canvas

A business model can be articulated in conceptual blocks that allow making explicit the most relevant phenomena for the management of a company. This formalism – also known as “Business Model Canvas” – was proposed for the first time by Alexander Osterwalder in his work “Business Model Ontology (2004)” and afterwards developed in cooperation with Yves Pigneur and Alan Smith and a community of 470 experts in 45 countries and published in “Business Model Generation (2009)”. The Osterwalder and Pigneur formalism (2009) foresees 9 elementary blocks (please see Figure 1) described in the following.

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Figure 1 Business Model Canvas

The Business Model Canvas is a complete and systemic method: it succeeds in including and representing in effective manner all the parts and internal/external dynamics that are within a Business Model using a visual language (visual thinking logic). The Business Model Canvas method allows reducing the complexity of the business modeling giving understandability and essentiality to such activity while reducing at the same time misunderstanding and errors occurrences. This method has been already successfully tested, verified and applied in various companies all over the world (e.g. Ericsson, Capgemini, Deloitte, 3M, PwC). At present the BM Canvas method is taught in International Universities (e.g. Stanford e Berkley University).

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Value proposition

This block describes the characteristics of the products/services offered, underlining the problem solved to the customer and the benefits expected from his side that can be related to different aspects such as:

new needs satisfaction;

performances;

customized solution;

reliability;

novel design;

risks and costs reduction;

competitive price;

accessibility;

usability.

Customer Segments

This block provides the identification of the clients segments on the basis of their needs/benefits guaranteed. The Customer Segments represents the core of the BM.

Channels

The Channels block describes how the company communicates with its customers and provides its services to make available the Value Proposition. Channels can be physical (e.g. shops) or virtual (e.g. e-commerce/ selling platforms/ own website), direct (own shop) or indirect (franchising, wholesaler, distributors).

Customer Relationships

This block indentifies the path for acquiring and keeping faithful the customers. Different assistance means are recognized as effective customer relationships as:

Personal assistance: this relationship is based on human interaction

Self-service: the customer should received all the info needed in order to help himself

Automated services: this type of relationship mixes a more sophisticated form of customer self-service with automated processes offering customized services based on the customer profile and need

Communities: increasingly, companies are utilizing user communities to become more involved with customers/prospects and to facilitate connections between community members. Many companies maintain online communities that allow users to exchange knowledge and solve each other’s

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problems. Communities can also help companies better understand their customers

Co-creation: more companies are going beyond the traditional customer-vendor relationship to co-create value with customers.

Other interesting customer relationships can be connected to:

Meeting a Trade Shows;

Webinars;

Email/Direct Mail;

Advertisment;

Newsletters;

Search Engine Marketing;

Invitation to Conferences/Speeches;

Blogging/Guest Articles;

Contacts and contents sarin on Social Media.

Revenue Streams

This block identifies the revenues model and product/service pricing model. It represents the cash flow that a company generates from each Customer Segment Revenues can be derived from different sources: physical (e.g. direct selling, fee proportional to the use), virtual (use of app for selling), grants and crowd funding. Among the most known revenues schemes can be quoted:

Asset sale. The most widely understood Revenue Stream derives from selling ownership rights of a physical product.

Usage fee. This Revenue Stream is generated by the use of a particular service. The more a service is used, the more the customer pays.

Subscription fees. This Revenue Stream is generated by selling continuous access to a service.

Lending/Renting/Leasing. This Revenue Stream is created by temporarily granting someone the exclusive right to use a particular asset for a fixed period in return for a fee. For the lender this provides the advantage of recurring revenues. Renters or lessees, on the other hand, enjoy the benefits of incurring expenses for only a limited time rather than bearing the full costs of ownership.

Licensing. This Revenue Stream is generated by giving customers permission to use protected intellectual property in exchange for licensing fees. Licensing allows rights holders to generate revenues from their property without having to manufacture a product or commercialize a service

Brokerage fees. This Revenue Stream derives from intermediation services performed on behalf of two or more parties.

Advertising. This Revenue Stream results from fees for advertising a particular product, service, or brand.

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Pricing can be estimated on the basis of the cost of the product/service, of the value generated by the product, of the volumes sold. The price can be either fixed or dynamically fixed (e.g stock market)

Key resources

This block identifies the most important resources needed to deliver the Value Proposition to the Customers. Key resources can be owned or leased by the company or acquired from key partners. Key resources can be classified as:

Physical. This category includes physical assets such as manufacturing facilities, buildings, vehicles, machines, systems, point-of-sales systems, and distribution networks;

Intellectual resources such as brands, proprietary knowledge, patents and copyrights, partnerships, and customer databases are increasingly important components of a strong business model;

Human resources. Every enterprise requires human resources, but people are particularly prominent in certain business models;

Financial resources. Some business models call for financial resources and/or financial guarantees, such as cash, lines of credit, or a stock option pool for hiring key employees.

Key Activities

The Key Activities Building Block describes the most important things a company must do to make its business model work Every business model calls for a number of Key Activities. These are the most important actions a company must take to operate successfully. Like Key Resources, they are required to create and offer a Value Proposition, reach markets, maintain Customer Relationships, and earn revenues. And like Key Resources, Key Activities differ depending on business model type. Key activities can be related to:

Production. These activities relate to designing, making, and delivering a product in substantial quantities and/or of superior quality. Production activity dominates the business models of manufacturing firms.

Problem solving. Key Activities of this type relate to coming up with new solutions to individual customer problems.

Platform/network. Business models designed with a platform as a Key Resource are dominated by platform or network related Key Activities. Networks, match making platforms, software, and even brands can function as a platform.

Key Partners The Key Partnership describes the network of suppliers and partners that make the business model work. Companies forge partnerships for many reasons, and partnerships are becoming a cornerstone of many business models. Companies create

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alliances to optimize their business models, reduce risk, or acquire resources. We can distinguish between four different types of partnerships:

• Strategic alliances between non-competitors;

• Competition: strategic partnerships between competitors;

• Joint ventures to develop new businesses;

• Buyer-supplier relationships to assure reliable supplies.

Costs structure

The Cost Structure describes all costs incurred to operate a business model. Naturally enough, costs should be minimized in every business model. But low Cost Structures are more important to some business models than to others. Therefore it can be useful to distinguish between two broad classes of business model Cost Structures:

Cost-driven focus on minimizing costs wherever possible. This approach aims at creating and maintaining the leanest possible Cost Structure, using low price Value Propositions, maximum automation, and extensive outsourcing;

Value-driven Some companies are less concerned with the cost implications of a particular business model design, and instead focus on value creation. Premium Value Propositions and a high degree of personalized service usually characterize value-driven business models.

The categories of cost that interact with a business model may be:

Fixed costs: Costs that remain the same despite the volume of goods or services produced such as salaries, rents, and physical manufacturing facilities;

Variable costs: Costs that vary proportionally with the volume of goods or services produced;

Economies of scale: Cost advantages that a business enjoys as its output expands;

Economies of scope: Cost advantages that a business enjoys due to a larger scope of operations.