Our feasibility study focused on the following main tasks and objectives:
Commercial validation (objective: to assess the product validity from user perspectives)
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In order to gain a better understanding of the needs of our target customers, we ran two market surveys, one for Italian cities, and one for other cities (in English). This latter particularly addressed English local councils, which were identified as a particularly fertile ground for TrafficFlow. This is recognised by the fact that all the representatives we contacted have a budget for traffic statistics. Although usually limited, this budget is compatible with our value proposition.
We distributed the two surveys through online platforms. We collected 20 answers from Italian cities, and 5 from the English cities. From these answers, we drew insights about the benefits that our potential customers expect by acquiring our product, and how much money these customers would be willing to pay to access such benefits.
In particular, we assessed two basic hypotheses of our idea: 1) traffic data are recognised as crucial for many tasks, although cities have limited equipment to collect them, and 2) they all have emerging needs that are not satisfied by traditional devices, but that we address, such as monitoring of bike lanes.
IP validation (objective: to assess the freedom to operate on the designed markets)
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We conducted a (FTO) analysis by searching patent literature for issued or pending patents. The analysis revealed that the products and services in the scope of our project do not pose problem of infringing patents owned by others in the European Union.
We expected this finding, as the core technology of our project is software running on generic hardware, and therefore cannot be patented according to European laws. In Europe, in fact, "computer programmes as such" are excluded from patentability, thus European Patent Office policy is consequently that a programme for a computer is not patentable if it does not have the potential to cause a "technical effect" which is by now understood as a material effect (a "transformation of nature") .
Due to the high presence of medium/small cities with high requirements in terms of Intelligent Transportation Systems, the EU is our primary market, and therefore we can safely assume that no relevant patent applications could become a barrier.
In the US and rest of the world, we found indeed some relevant patents. A detailed analysis of all these patents is not necessary at this stage. It would also be too costly and not conclusive. A preliminary analysis suggests however that the surveyed patents do not pose critical barriers to the project. The relevant patents, in fact, cover methods and systems for measuring traffic statistics, but it seems very plausible that our method builds upon very different techniques and therefore does not infringes or damages IP holders.
Market Validation (objective: to understand the market size, opportunities, and challenges)
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We conducted a detailed market analysis validation, focussed in particular on the EU and US markets, by surveying various market reports. Our reference market segment is that of Intelligent Transportation Systems, of which sensors and systems for traffic monitoring are key components. Environmental concerns, rapid urbanization and population explosion, and demand for real-time information, are some of the factors driving the traffic management system market.
The global intelligent transportation system (ITS) market is expected to grow from € 35.10 Billion in 2015 to € 60 Billion by 2022, at a CAGR of 8.3% between 2016 and 2022. Europe accounts for 29% of this market. The roadways segment largely dominates this share, generating about € 4 Billion in 2015.
Road traffic management, possibly the principal application for our solution, is the largest application segment in the overall Intelligent transportation systems and services market and accounted for the largest revenue share in 2014. With rising population, number of vehicle and limited scope for road expansion metropolitan cities across the world are continuously facing congestion problems.
To understand our addressable market, we performed an analysis of the city distribution in Europe, which is our initial reference market. Currently, there are over 800 cities with more than 50,000 inhabitants in the European Union. These represent our Total Addressable Market in the EU. The majority of these, almost 700, are small and medium-sized cities (between 50,000 and 250,000 inhabitants). These are our main customer target and represent our Total Addressable Market in Europe. Besides, 50K size is a conservative threshold, as even smaller cities might be well interested in our technology as demonstrated in our preliminary pilots. In our business plan, we estimated to reach less than 10% of this market by 2023, starting from 1%, which could be secured from the beginning by strengthening our current existing relationship with a reasonable marketing, commercial and sales effort. The majority of these contacts come from Italy and England, representing the first two nations where we will establish presence.
In the US (second reference market), numbers are obviously bigger. In 2015, there were more than 40000 cities (e.g. incorporated places – source statista.com). These represent our TAM in the US. Of these, 2796 have a population bigger than 25000. These represent the market size we address in the US (SAM). We set the threshold a bit lower than in the EU, as we have observed that the needs for accurate traffic statistics is more deeply rooted in the US, and usually even smaller towns have some sort of equipment and a yearly budget for these type of measurements. In fact, most of our competitors are from the US. That is why in our plan we set a conservative target of 2% market share by 2023, starting from a decimal market share that again will be secured by exploiting existing network of contacts.
Business model detailed definition (objective: to produce a quantitative business model and assess funding needs)
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We performed a detailed cost/revenues structure analysis, with the goal of creating a spin-off company that will be entirely supported by the Traffic Flow business over the next years.
Our business model is based on hardware sales plus services models. Following a pattern that is becoming more and more pursued these days, we will try to leverage services delivering value that draws new and retains existing customers. This way we will be able to engage longer with the customer, increasing the opportunities for more monetization, one of the key factors driving the growth of the subscription economy. In practice, this will work as follows: people would buy the hardware (i.e. the counting sensors) from us or from a distributor, and will have access to the basic functionalities provided directly by the sensor. This will be a traditional one-time, per sensor hardware sale. Additionally, they will have the possibility to buy a subscription to web-based services, such as data storage, visualisation, charting, insights, etc. A key factor will be to keep these services attractive and innovative over the years, including features such as predictive analysis, mobile-app alerts, etc. Our overall profit and loss indicates a financial need in terms of cash covering during the first two years. From the third year, this need is self-sustained.
In addition to the above activities, we have further investigated some technical aspects such as the hardware requirements, and the expected performances of the counting sensors. Finally, we have attended various events dedicated to smart cities, and traffic, thereby expanding and strengthening our network of stakeholders and potential customers.
