The transportation industry is on the verge of unprecedented change. Slowly but surely, city and state governments, municipalities, and transportation agencies are introducing technologies powered by the Internet of Things (IoT). These technologies connect our streets and highways with highly automated vehicles, mass transit systems, and other roadside infrastructure. The promise of these technologies is safer and more efficient travel that improves citizens’ quality of life. But, as with any new technology, there is a downside.

Without a doubt, massive capital is required to make smart transportation systems a reality. In fact, the transportation industry is expected to spend a whopping $85 billion on IoT solutions by 2020. If upfront expenses aren’t enough of a challenge, new technologies are putting transportation agencies at risk for losing many vehicle-related recurring revenues.

First, the influx of electric vehicles (EVs) means less revenue from gasoline and diesel taxes, which will reduce the funds that departments of transportation canĀ use for maintaining roads and infrastructure. Research suggests that gas tax revenue could drop by as much as $3 billion if and when EVs account for 20 percent of new car sales.

Second, the rise in mobility as a service (MaaS) or transportation as a service (TaaS) — such as rideshares, bike shares, and, eventually, fully automated ride-hailing services — will mean that fewer people will own a vehicle. This will lead to less revenue from tolls, vehicle registrations, city-licensed cabs, parking meters, parking tickets, and more.

Recouping losses

Although IoT-enabled technologies and other transportation innovations may reduce recurring revenue streams, these technologies also provide a solution for recouping losses. The answer lies in the data that connected devices, infrastructure, and vehicles provide. Traditionally, the extent of transportation agencies’ involvement with any data generated from our transportation systems has been simply storing it and securing it. However, by aggregating and analyzing this data, transportation entities can identify opportunities to improve existing processes that provide return on investment (ROI).

For example, the Federal Highway Administration reimburses state departments of transportation (DoTs) based on vehicle counts. With existing technology, most counts are haphazard at best. But with IoT sensors on the roadways that feed real-time data to a centralized IoT platform, transportation officials can ensure more accurate traffic counts that translate into revenue. Or a municipality can analyze traffic data at a particular intersection or road to enable better capacity planning and resource utilization.

Moreover, transportation entities can create new revenue streams by monetizing the data they collect. For example, if a DoT already collects traffic data, why not license that information to a third-party navigation company like Google Maps or TomTom to improve their route-planning capabilities? Or if an agency collects weather data, it could lease data to weather institutions, enabling them to create more hyperlocal and accurate forecasts.

The Tennessee Department of Transportation (TDOT) has deployed IoT roadway sensors to detect fog and alert drivers of hazardous road conditions through connected signage. Now, what if TDOT sold that real-time data to the National Weather Institute, for instance, to improve forecast accuracy? Surely this could generate additional profits for this already innovative agency.

Driving value from data

Although more transportation organizations understand the importance of leveraging the data they collect to unveil new revenue streams, the question remains: How, exactly, can they achieve this feat? In a recent survey of 100 large transport companies around the globe, 25 percent of respondents said they would need additional analytical skills to successfully deliver IoT solutions, and 55 percent said that the data gathered by IoT solutions were available only to departments directly involved in the IoT deployment. Without organization-wide visibility, the data has very limited value.

The solution to these data analytics woes begins with transitioning from closed, legacy, and proprietary networks to modern infrastructures that allow for interoperability between connected transportation components. Simply put, organizations need a flexible, end-to-end, backbone network that allows vehicles to securely communicate and share real-time data with roadway sensors, IoT devices, smartphone applications, and everywhere in between. Once these components can seamlessly share and store information, an IoT platform can aggregate the data for further in-depth analytics. From a centralized control center, appropriate departments and transportation officials can obtain the previously elusive insights needed to identify areas for cost savings and revenue generation.

To get started, transportation organizations should bring together as many departments, third-party experts, technology providers, and consultants as possible to carefully design an IoT project that delivers ROI. Some agencies may want to consider creating an Office of Revenue Generation — as opposed to just an Office of Roadway Engineering — to pinpoint opportunities to yield new revenue. I also recommend applying for as many available federal and private transportation grants as possible to offset some of the upfront costs for IoT initiatives.

Data is the new oil

With many opportunities to monetize IoT data in the transportation industry, it is easy to see why the phrase “data is the new oil” is quickly gaining traction. Like oil, data has become a precious commodity that can be easily capitalized to uncover new value. Also, like oil, data needs to be refined to provide real outcomes.

As more organizations introduce connected transportation technology, this new oil will be key to help companies recoup losses and overcome ROI roadblocks. And, with new recurring revenue streams, transportation organizations can more readily invest back into their roads, highways, and infrastructure to create safer and more sustainable travel for all.

Kyle Connor is the transportation industry principal at Cisco, a worldwide leader in IT and networking.