1、A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:From PlatForm owners PersPectiveA STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE2TABLE oF CONTENTSExecutive Summary.5Chapter 1 Introduction of

2、 IoT and IoT Products.61.The Development of IoT in China.62.Characteristics of IoT Products.9Chapter 2 IoT Ecosystem:The Three-layer Business Model.101.Application layer.102.Platform layer.113.Infrastructure layer.124.Competitive advantages.12Chapter 3 Measuring Revenues.141.Comparison of Revenue Mo

3、dels between IoT Ecosystems and Traditional Businesses.142.Revenues from One-time Direct Users.143.Revenues from Recurring Direct Users.144.Revenues from Cross-over Users.15Chapter 4 Evaluating Performance.161.Comparison of Performance Evaluation between IoT Ecosystems and Traditional Businesses.162

4、.Objectives,Performance Drivers,and Metrics.18Conclusion.21Initiative 1:Enhance User Acquisition,Retention,and Engagement.21Initiative 2:Improve Entry Criteria,Support Systems,and Exit Mechanism for Partners.21Initiative 3:Create and Enhance Synergies.21A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE

5、 EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE3IMA(Institute of Management Accountants)is a global professional association focused exclusively on advancing the management accounting profession.For more information,please visit www.imanet.org.August 2023/Institute of Manag

6、ement Accountants,10 Paragon Drive,Suite 1,Montvale,NJ 07645A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE4ABOUT THE AUTHORSFudan University Research Team:Rong Huang,lidasan endowed chair Professor at the school of management.r

7、esearch Field:Performance evaluation,executive compensation,strategic cost analysis,and business valuationSiqi Zhou,PhD student at the school of managementRuoqi Han,PhD student at the school of managementIMA Research Team:Shuhao Yao,CMA,CSCA,research managerYufei Shan,CPA,CMA,CFE,CSCA,PMP,senior man

8、ager,research and KnowledgeQi“Susie”Duong,PhD,CMA,CPA,CIA,EA,Director of researchA STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE5executive SUMMARYIn todays digitalized world,the advent of Internet of Things(IoT)technology is tra

9、nsforming our lifestyle and work methods.IoT technology amplifies the user feedback loop,thereby encouraging users to purchase more products that complement their existing smart devices.This,in turn,enhances user loyalty to the platform and ecosystem.However,this innovative business model also poses

10、 challenges to platform owners in precisely measuring revenue streams and evaluating performance within an IoT ecosystem.Traditional business valuation tools view a company as an isolated entity,neglecting the value generated by business partners and users of different groups,such as one-time users

11、and recurring users.Consequently,the application of traditional business valuation tools might produce distorted results.This study intends to offer a holistic framework for gauging revenues originating from different user categories and pinpointing business performance drivers within an IoT ecosyst

12、ems infrastructure,platform,and application layers.Furthermore,we also discuss metrics for assessing user engagement,platform infrastructure,and participant engagement.The report uses case studies of IoT companies such as Haier,Xiaomi,Tuya,and others to exemplify business objectives,organizational s

13、tructure,revenue measurement,and performance evaluation in their IoT ecosystems.These examples could act as beneficial tools for companies within the IoT ecosystem,aiding in the identification of potential opportunities for enhancing user growth,diversifying product offerings,creating network synerg

14、ies,boosting revenue,and improving overall company value.For companies looking to establish or become part of an IoT ecosystem,this report provides insights on organizational design,internal controls,revenue measurement,and performance evaluation that are essential for success within an IoT ecosyste

15、m.Our target audience primarily comprises:1.Management accountants who are interested in the business models and management control systems within an IoT ecosystem.2.Business professionals who are employed in platform-based firms that bridge end-users and suppliers,including giants such as Amazon,Go

16、ogle,and Alibaba.3.Students with aspirations to explore prospective careers in auditing,accounting information systems,cost management,budgeting and controlling,financial planning,and accounting data analysis within an IoT company.4.Regulators striving to comprehend online user growth data,online tr

17、affic data,and the background operation data of certain platform companies,as well as those working on updating the securitization and tax policies related to these companies.A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE6chapt

18、er 1Introduction of IoT and IoT Products1 ITU-T Y.4000/Y.2060(06/2012),https:/handle.itu.int/11.1002/1000/115591.The Development of IoT in ChinaAs per the International Telecommunication Union(ITU),IoT is a global infrastructure for the information society,enabling advanced services by interconnecti

19、ng(physical and virtual)things based on existing and evolving interoperable information and communication technologies.1 Since the formal introduction of this concept by the ITU in 2005,IoT has witnessed substantial progress over the last decade.Figure 1 depicts the annual worldwide trend of IoT-con

20、nected devices.The number of these devices is projected to nearly triple from 9.7 billion in 2020 to over 29 billion in 2030.These IoT-connected devices permeate all industrial and consumer markets,with the consumer sector accounting for approximately 60%in 2020,a percentage forecasted to remain con

21、sistent over the forthcoming decade.Within the consumer market itself,the primary application of IoT devices lies in end-user-centric devices such as smartphones.These end-user-centric IoT devices are expected to surge to more than 17 billion by 2030,with 5 billion devices operating in China,the wor

22、lds largest consumer market for IoT devices.FIgURE 1:number oF internet oF things connecteD Devices arounD the worlDSource:Statista0%4%8%12%16%20%051015202530352019202020212022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030EGrowth RateConnected Device(Billion)Connected DeviceGrowthA STUDY ON REVENU

23、E MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE7FIgURE 2:global marKet oF internet oF things FIgURE 3:china marKet oF internet oF thingsSource:StatistaSource:China Industrial Development Institute(CIDI)The market for IoT is experiencing growth o

24、n a global scale as well as in China.Figure 2 presents the size and the growth rate of the worldwide IoT market.The global market was valued at USD 248 billion in 2020 and is anticipated to expand at a compound annual growth rate(CAGR)of 40%from 2020 to 2025.Figure 3 details the size and growth rate

25、 of Chinas IoT market.Chinas IoT market stood at RMB 258 billion in 2011 and is projected to reach RMB 2,120 billion in 2022,marking a CAGR of 20%.This remarkable growth rate is primarily fueled by a significant rise in the number of smartphone users in China.0%20%40%60%80%05001000150020002017201820

26、1920202021E2022E2023E2024E2025EGrowth RateMakrt Size(USD Billion)Market SizeGrowth0%20%40%60%0500100015002000250020112012201320142015201620172018201920202021E 2022EGrowth RateMarket Size(RMB Billion)Market SizeGrowthA STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHI

27、NA:FROM PLATFORM OWNERS PERSPECTIVE8FIgURE 4:number oF internet oF things-relateD Public comPanies2in china FIgURE 5:marKet value anD sales oF internet oF things-relateD Public comPanies in chinaSource:WinGoSource:WinGo,CSMAR2 We use the textual analysis method to identify IoT-related listed compani

28、es according to their financial statements.If a company mentions IoT-related terms in the financial statements,it means the company has IoT business now or has plans to expand into the IoT market in the future.0%40%80%120%160%200%240%020040060080010001200140016002009201020112012201320142015201620172

29、01820192020Growth RateListed CompaniesPublic CompaniesGrowth050001000015000200002500005,00010,00015,00020,00025,00030,00035,000200920102011201220132014201520162017201820192020Sales(RMB Billion)Market Value(RMB Billion)Market ValueSalesA STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN I

30、OT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE93 Porter,M.E.and Heppelmann,J.E.(2014)How Smart,Connected Products Are Transforming Competition.Harvard Business Review,November.Porter,M.E.and Heppelmann,J.E.(2015)How Smart,Connected Products Are Transforming Companies.Harvard Business Review,

31、October.4 Porter,M.E.and Heppelmann,J.E.(2014)How Smart,Connected Products Are Transforming Competition.Harvard Business Review,November.Figures 4 and 5 depict the quantity of IoT-related public companies,along with their cumulative market values and sale revenue over time.In 2009,the Internet of Th

32、ings was a relatively nascent concept for Chinese firms,with a mere 39 IoT-associated listed companies in the market.However,by 2020,as many as 1,462 publicly-listed companies had IoT-related operations or planned to venture into the IoT market,comprising approximately 35%of Chinas total number of p

33、ublicly-listed firms.As the count of public companies escalates,their cumulative market value and sale revenue witness rapid growth as well.For instance,the combined market value of the IoT-related listed companies had surged markedly from RMB 427 billion in 2009 to 28,800 billion in 2020,yielding a

34、 CAGR of 47%.Concurrently,the aggregate sales revenue leaped from RMB 189 billion in 2009 to RMB 20,960 billion in 2020,marking a CAGR of 53%.2.Characteristics of IoT ProductsAccording to Porter and Heppelmann,IoT products comprise three elements:the physical component,the smart component,and the co

35、nnectivity component(see Figure 6).3 Given the increased capacities and accrued data of“things”,Porter and Heppelmann postulate that IoT represents the third wave of IT-driven transformation of competition.This wave introduces new functionalities at the product level,including monitoring,control,opt

36、imization,and autonomous operation,thereby presenting tremendous potential for product differentiation.At the corporate level,IoT enables more informed and value-enhancing activities,including marketing,R&D,procurement,and after-sales services,compared to traditional businesses.Companies across diff

37、erent industry segments might cooperate to restructure their value chain.For instance,domestic appliance manufacturers could collaborate with a tech company offering security solutions.As a result,“the basis of competition thus shifts from the functionality of a discrete product to the performance o

38、f the broader product system,in which the company is just one actor.“4 FIgURE 6:the structure oF iot ProDuctsPhysical componentMechanical and electrical parts smart componentSensors,microprocessors,data storage,controls,software,and an embedded operating system and enhanced user interfaceconnectivit

39、y componentPorts,antennae,and protocols enabling wired or wireless con-nections among the productsSource:Porter and Heppelmann,2014A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE10An IoT ecosystem is referred to as a network of

40、autonomous entities collectively offering complementary goods and services to customers,with IoT technology as a foundational component.Figure 7 illustrates an analytical framework for the business model of an IoT ecosystem.The IoT architecture is segmented into three layers from a traditional suppl

41、y chain perspective:infrastructure,platform,and application.Each layer is discussed in detail below.1.Application layerThe application layer forms the topmost layer of an IoT ecosystem,encompassing IoT hardware devices and software applications that directly interact with users.5 This layer comprise

42、s smart devices and integrated end-user software,equipping users to effortlessly deploy,connect,and manage their smart devices.It pertains to various scenarios in which IoT devices can be deployed,such as smart homes,smart cities,and smart health.For instance,within the smart health scenario,numerou

43、s health and fitness applications monitor an individuals physical health,diet,exercise,and lifestyle,subsequently FIgURE 7:analytical FrameworK oF the business moDel oFiot ecosystemschapter 2IoT Ecosystem:The Three-layer Business ModelPlatform infrastructureGoods and services from companiesGoods and

44、 servicesGoods and servicesApplication Layer(Hardware and software)Infrastructure LayerPlatform LayerDownstreamUpstreamComplementor CPlatform ownerComplementor ASupplier CSupplier BSupplier AThe EcosystemPlatform interfaceusersGoods and services5 We use the term“user”to emphasis that IoT ecosystems

45、tends to build long-time relationships with its clients,instead of“consumer”,which is more transaction-based.A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE11FIgURE 8:the Players on a PlatFormproviding tailored health recommenda

46、tions.As a result,users may grow more reliant on the services provided by the application layer,generating recurring revenue.Such applications construct a user-orientated ecosystem of products and services to secure user loyalty.2.Platform layerThe middle layer is referred to as the platform layer o

47、r the platform interface.For instance,video game consoles such as Microsofts Xbox and Sonys PlayStation serve as platforms,facilitating the development of complementary games by third-party developers and their usage by end-users.As illustrated by the video game console example,a platform layer typi

48、cally incorporates at least three types of participants,as depicted in Figure 8:1.Platform owner,who owns or sponsors the platform and sets standards for third-party companies.Generally,this is a leading industry company equipped with the necessary resources and talents to guide the future developme

49、nt of the platform,akin to Microsoft for Xbox and Sony for PlayStation.2.Providers of complements,also known as complementors,are third-party companies that align or delegate their production and customer engagement activities to the platform while preserving a degree of autonomy,such as the third-p

50、arty game developers.Complementors enhance the platforms value by providing personalized goods and services to end customers.6 3.Users,who are ultimate consumers of the products and services delivered by both the platform owner and the complementors.5 Jacobides,M.G.,Cennamo,C.and Gawer,A.(2018)Towar

51、ds a theory of ecosystems,Strategic Management Journal,39(8),pp.22552276.doi:10.1002/smj.2904.Platform ownerPlatformComplementorsUsers For example,Tuya,a Chinese AI and IoT company,has established an IoT cloud platform.On the one side,the platform delivers a user interface,enabling end-users to conv

52、eniently search for and manage multiple devices from various vendors.On the other side,it equips independent brands with diverse business capacities,ranging from infrastructure support,security,and monitoring to data analytics and end-user management.The freedom allows management to streamline opera

53、tions,thereby enhancing operational efficiency and reducing costs.The two-way integration platform has helped Tuya acquire a large customer base.A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE123.Infrastructure layerThe foundati

54、on layer is known as the infrastructure layer or the platform infrastructure.This layer provides standards,toolkits,or workspaces for businesses to streamline production activities and manage the supply chain.The infrastructure layer can be likened to a data center endowed with storage,computing,and

55、 network capabilities.Companies can construct their own IoT systems using toolkits and cloud-based services supplied by infrastructure layer providers.By saving the time and resources that would be spent on establishing infrastructure and equipment from the group up,IoT ecosystems enable businesses

56、to concentrate on supply chain management,production innovation,and the enhancement of customer relationships.Consider the example of a Chinese retail apparel company,Peacebird Fashion(hereinafter referred to as“Peacebird”).Peacebird was grappling with various sales bottlenecks,including an inventor

57、y backlog,substandard product design,and inefficient store management.To resolve these issues,Peacebird embarked on several digital transformation projects,which included updating the IoT-based infrastructure hardware and deploying a new software system.Some of these projects encompassed the impleme

58、ntation of retail store inventory management devices and online networks to consolidate real-time sales data and user feedback.All operations,extending beyond inventory and customer relationship management,are configured using the system for automatic and timely decision-making.As a result,Peacebird

59、 attained zero inventory and realigned product lines at minimum costs by relying on this system.4.Competitive advantagesThe cornerstone of the competitiveness of an IoT ecosystem as a business model lies in its ability to construct a micro-market with“visible hands”.This is the initiatives and coord

60、ination led by the platform owner that outperforms the macro-market operating with invisible hands.The superiority is attributable to the network effects,a shortened user feedback loop,and the efficiency in resource allocation.7 Primarily,network effects refer to scenarios where the networks value e

61、scalates with the increase in participant count.For instance,the value of the IoT ecosystem of Haier,one of Chinas leading IoT companies,grows with the rise in the number of users and third-party providers.Furthermore,the IoT ecosystem functions as a two-sided,platform-led market involving both busi

62、nesses and individuals,hence,experiencing both direct and indirect network effects.Direct network effects are contingent on the number of participants capable of interacting within the ecosystem.As the community of enterprises and individuals enlarges,user loyalty augments while the marginal cost fo

63、r businesses(for instance,promotional and transaction costs)diminish.This development,in turn,amplifies the network effects.To illustrate,consider Haiers smart living room.If users already possess Haier TVs and are satisfied with the companys products and services,they are more prone to purchase Hai

64、er projectors to synchronize with their TVs and other smart living room devices.On the other hand,indirect network effects arise from the variety offered by third-party complementors.Following Haiers smart living room example,when a considerable user base benefits from its smart living room devices,

65、its ecological partners,such as companies that manufacture IoT products for bedrooms,study rooms,and kitchens,will find joining Haiers ecosystem more profitable due to its extensive customer base.7 Jacobides,M.G.,Cennamo,C.and Gawer,A.(2018)Towards a theory of ecosystems,Strategic Management Journal

66、,39(8),pp.22552276.doi:10.1002/smj.2904.Moore,J.F.(2006)Business Ecosystems and the View from the Company,The Antitrust Bulletin,51(1),pp.3175.doi:10.1177/0003603X0605100103.A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE13Secon

67、dly,shortened user feedback loop ensures effective and efficient routing of user feedback to corresponding complementors.As an illustration,consider a user purchasing an electric vehicle.The embedded IoT device within the vehicle can monitor performance,alert the user to recharge the battery or chan

68、ge the tire as required,and suggest relevant vehicle supplies.The expedited feedback loop not only generates value for the users but also enhances the agility and competitiveness of the complementors.Lastly,the platform owner,the principal sponsor of the ecosystem,can impart or delegate some of its

69、efficient internal practices,such as application development techniques or quality control standards,to the ecosystem and hence,to the complements providers.Consequently,the complementors can employ these tools for their development instead of initiating from scratch,which boosts the ecosystems over

70、all resource allocation efficiency.The collaborative exchange of resources and insights among the participants fosters mutual benefits surpassing the revenues they could attain individually.A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PE

71、RSPECTIVE14chapter 3Measuring Revenues1.Comparison of Revenue Models between IoT Ecosystems and Traditional BusinessesIn essence,companies record and document their transactions based on an assumption of separate-and-independent accounting entities.However,such methods do not satisfy the managerial

72、requirements of platform owners to measure revenue streams in an IoT ecosystem,where diverse entities collaboratively deliver goods and services.The revenue measurement methods in IoT ecosystems significantly deviate from traditional approaches.It initially categorizes revenue according to user type

73、 rather than good or service type.The driving factor behind intercompany collaboration is user needs,from which the ultimate value of the ecosystem derives.Simultaneously,users are indispensable assets within the IoT ecosystem.Some of these users can promptly provide feedback tailored to highly pers

74、onalized,customized,and contextual needs,thereby enabling companies to adjust their value-creation activities swiftly.This rapid adjustment represents a new form of value co-creation in the IoT ecosystem.Users,depending on their transaction frequency and level of integration into the IoT ecosystem,c

75、an be grouped into three categories:one-time direct users,recurring direct users,and cross-over users.Each groups impact on the ecosystem varies.The measurement and understanding of revenues generated by these user types offer two key advantages.Firstly,it allows for an accurate assessment of the ec

76、osystems overall value and facilitates the distribution of benefits among various parties.Secondly,it aids in continuous monitoring,evaluation,and enhancement of the ecosystems value-creation process.2.Revenues from One-time Direct UsersThe initial source of revenue is derived from one-time direct u

77、sers.One-time direct users are largely attracted via marketing activities and typically procure physical products,with IoT technology offered as an ancillary service bundled together.Consequently,their engagement in the ecosystems evolutionary process is minimal,and the revenue they generate does no

78、t echo the network effects and the ecosystems synergy.Nevertheless,their transactions can act as a foundation for future dealings should they find satisfaction in the product provided and decide to purchase additional goods or services within the ecosystem at a later time.3.Revenues from Recurring D

79、irect UsersThe second type of revenue is accrued from recurring direct users who engage in numerous transactions within the IoT ecosystem.Typically,these users procure only complementary physical goods,and IoT technology can augment their experience by enhancing the ease of purchasing related produc

80、ts.For instance,Bluetooth earphones can serve as complementary physical products(related products)associated with a mobile phone purchase.When a user procures a mobile phone from Xiaomi,a Chinese mobile phone and smart hardware company,and requires Bluetooth earphones,they are more likely to opt for

81、 Xiaomi earphones.This is due to stronger compatibility among products within the same IoT A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE15ecosystem,including factors such as connection stability and sound quality.This enhanced

82、 compatibility from the same IoT ecosystem contributes to the convenience and quality of users purchase and consumption experiences.As the initial physical product,mobile phones heighten users preference for other complementary products,stimulating multiple transaction behaviors within the IoT ecosy

83、stem.Compared to the initial source of revenue,income derived from recurring direct users boasts greater user stickiness and increased user switching costs.These users exhibit a lower likelihood of transitioning to comparable products offered outside of the ecosystem,thereby establishing a competiti

84、ve advantage for the ecosystem.In this scenario,IoT technology enables resource sharing among ecosystem members but necessitates high complementarity among the products offered.However,transactions carried out by recurring direct users may be restricted and incapable of sustaining the ecosystems sel

85、f-renewal over time.In other words,they do not contribute to the ecosystems continuous improvement in product quality or the maintenance of a competitive edge.In the aforementioned example,for recurring direct users,IoT technology merely represents an ancillary service offered alongside mobile phone

86、s and Bluetooth earphones,rather than a primary product for which users are willing to pay.4.Revenues from Cross-over UsersThe third revenue stream in an IoT ecosystem is derived from cross-over users.The term“cross-over”is employed to underscore the synergistic values crafted by a broad assortment

87、of complementary IoT products for users.Unlike the second type of revenue,revenue stemming from cross-over users is primarily propelled by IoT technology.For these individuals,their lifecycle consumption is intimately linked with this IoT ecosystem,as purchasing products outside the ecosystem impose

88、s significantly high switching costs.Such users demonstrate robust user loyalty and constitute the most invaluable assets of the ecosystem.Consider the journey of an individual user as an example.Initially,this user procures a home appliance from Haier,subsequently discovering the capability to remo

89、tely control the device via the“Haier Smart Home”mobile phone App.This convenience entices the user to acquire a variety of home devices,thereby transitioning into a cross-over user.Picture this scenario en route home,the user employs the App to remotely activate the air conditioner,rice cooker,and

90、cleaning robot.Upon arrival,the user is greeted by an optimally comfortable room temperature,freshly prepared rice,and a pristine floor.Moreover,any dissatisfaction with the products can be communicated directly to Haier through instantaneous feedback within the App,aiding Haier in refining its prod

91、uct line.On the whole,Haiers IoT ecosystem caters to users convenience by effectively addressing their needs in various home-related situations.By deeply embedding into the users living environment,Haiers products offer unrivaled ease and control by capitalizing on IoT technology.Cross-over users pl

92、ay a crucial role in augmenting the ecosystems value.On the one hand,they furnish the ecosystem with direct feedback from the consumer market,facilitating product enhancements and ecosystem self-renewal.On the other hand,they can actively engage in the ecosystems evolution by proposing new consumpti

93、on scenarios and broadening the ecosystems matrix horizontally.A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE16chapter 4Evaluating Performance1.Comparison of Performance Evaluation between IoT Ecosystems and Traditional Busines

94、sesTraditionally,an organizations performance was evaluated from financial aspects,utilizing metrics such as Return on Equity(ROE)or Return on Assets(ROA).This retrospective approach,based on lag financial data,was insufficient for informing long-term business prospects.The Balanced Scorecard(BSC),i

95、ntroduced by Kaplan and Norton in 1992,has supplemented this area by integrating financial and non-financial components into four interconnected perspectives:Innovation and Learning,Internal Business,Customer,and Financial.8 For instance,training can enhance human capital,subsequently improving inte

96、rnal processes.This improvement leads to more efficient product delivery,culminating in increased customer satisfaction and financial returns.When the BSC is used in conjunction with the strategy map,companies can break down their strategies into business objectives and then identify metrics associa

97、ted with these objectives to measure progress in strategy implementation.Unlike traditional financial methods,the BSC suggests a forward-looking approach to performance evaluation by including non-financial perspectives like employee skills and client relationships.The underlining assumption of BSC

98、is that companies that transitioned from the industrial era are more adept at measuring tangible assets,such as machinery and equipment,rather than intangible ones,like knowledge and innovation.These intangible assets have become increasingly critical in dealing with competition and the rise of info

99、rmation technology.However,performance evaluation must continue to evolve in the IoT era to accommodate the new business context due to three challenges.The first is the aforementioned increase of users in business relationships,making user-oriented measures a vital dimension of performance evaluati

100、on.Users are not only sources but also catalysts for the network effects of ecosystems.Solely utilizing the size of the user base or the degree of customer satisfaction as measures does not adequately capture their dynamics.Companies need to comprehend users and their upgrade paths from contexts in

101、which they consume IoT products.Secondly,overlapping company boundaries complicate the definition of objectives and the setting of metrics.The interactions among companies from the same or different IoT layers are so intense and close that some core internal functions are delegated to others,renderi

102、ng their relationship fundamentally different from outsourcing.The third challenge lies in the measurement of the performance of ecosystem infrastructure.The infrastructure includes both base-level standards targeting complementors that define IoT devices and cooperation agreements,and top-level sta

103、ndards targeting users that aim to offer a consistent user experience.Hence,we propose an integrated performance evaluation framework for IoT ecosystems from the perspective of the platform owner,which plays a pivotal role in the IoT ecosystem,as depicted in Figure 9.This framework,adapted from BSC

104、and the strategy map,is divided into goals,objectives,and metrics.9 The goal should reflect the companys strategic differentiation aim in the ecosystem,ultimately designed to attract and upgrade ecosystem users.For instance,a nascent brand would adopt a strategy distinct from that of Amazon.The obje

105、ctives include three fundamental dimensions for evaluating an 8 Kaplan,R.S.and Norton,D.P.(1992)The Balanced ScorecardMeasures that Drive Performance,Harvard Business Review,January.9 Kaplan,R.S.and Norton,D.P.(1992)The Balanced ScorecardMeasures that Drive Performance,Harvard Business Review,Januar

106、y.A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE17FIgURE 9:FrameworK oF PerFormance evaluation oFan iot ecosystemUser Attraction and Upgrade(Differentiation Strategy)gOALOBJECTIVESMETRICSUserEngagementComplementorEngagementInfr

107、astructureEfficiencyMetric A,Metric B,Metric C.Metric A,Metric B,Metric C.Metric A,Metric B,Metric C.IoT ecosystem:user engagement at the core,complemented by complementor engagement and infrastructure efficiency.Metrics are specific indicators that should reflect progress towards objectives reliabl

108、y and measurably,defined in limited quantities to maintain focus.Causal relationships from metrics to objectives,and from objectives to the goal,should be established.Frigo,M.L.(2012)The Balanced Scorecard20 Years and Counting,Strategic Finance,October.10 Zhang,R.M.,Jiang,Q.P.,and Hu,G.D.(2018)Resea

109、rch on User Multiples and Value Management Based on Haiers RenDanHeYi Model(in Chinese).Chinese Journal of Management.15(09):1265-1274.IMA.(2020)The Win-Win Value Added Statement:Financial Tool in the Internet of Things Era(in Chinese).11 The evaluation criterion of Haiers three user categories may

110、vary across business lines or departments.In some cases,users are divided in more detailed categories to reflect the upgrading process,i.e.,users upgrade from a lower level of category to a higher one,contributing more revenues to the ecosystem.Haier has developed an information system and made orga

111、nizational adjustments to implement its ecosystem strategy.But these are out of the scope of this SMA.A practical illustration of this framework is Haiers Win-Win Value Added Statement(WWVA),as depicted in Figure 10.10 This user-centric performance evaluation approach,explicitly crafted for ecosyste

112、ms established by or stemming from Haier,classifies partners(i.e.,complementors)into interaction partners and active partners,and categorizes users into transaction users,interaction users,and lifetime users,based on their contribution to the ecosystem.Its noteworthy that these three types of users

113、correspond to one-time direct users,recurring direction users,and cross-over users,respectively.11 The WWVA enhances traditional financial statements with a comprehensive approach that encompasses users,partners,traditional and ecosystem-level costs and revenues across six sections:User Resource,Par

114、tner Resource,Ecosystem Value,Revenue,Cost,and Marginal Revenue.The final section,Marginal Revenue,equals the margin(i.e.,Revenue minus Cost)per transaction user.The structure of the WWVA aligns with the proposed framework by mapping the User Resource section to the user engagement objective,the Par

115、tner Resource section to the complementor engagement objective,and the Cost section to the infrastructure efficiency objective.Fundamentally,the WWVA indicates the degree of the ecosystems efficiency and effectiveness by assessing the dynamic process in which the Marginal Revenue escalates due to ne

116、twork effects.This process presumes that the advancement of users to the subsequent type,a phenomenon known as user multiples,will foster the A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE18value enrichment of the ecosystem,a c

117、oncept referred to as ecosystem multiples.This happens as the marginal cost to serve diminishes and the marginal revenue expands along with the growth of the user base.Additionally,the WWVA furnishes a robust basis for variance analysis,encompassing comparison with historical and budgeted records,wh

118、ich can be harnessed to evaluate and enhance performance.2.Objectives,Performance Drivers,and MetricsPerformance drivers represent a multitude of factors influencing performance,akin to how net income affects ROE.However,within the performance evaluation framework,performance drivers embody a concep

119、t broader than just revenue drivers,encompassing both financial and non-financial aspects,which incorporate both quantitative and qualitative measures.Well-structured metrics present numerous advantages.They can bridge the disparity between performance and its drivers,establish a shared FIgURE 10:us

120、er multiPles,ecosystem value multiPles,anD theirreFlection on the wwvaSource:Zhang,R.M.,Jiang,Q.P.,and Hu,G.D.(2018);IMA(2020)1.User ResourceTransaction UsershInteraction UsershContribution per UserhLifetime Usersh2.Partner ResourceInteraction PartnershActive Partnersh3.Ecosystem Value3.1 ProfitsTra

121、ditional ProfitsgEcosystem Profits1xgNx3.2 Value added Sharingh4.RevenueTraditional RevenuegEcosystem Revenue1gNRevenues per User1gN5.CostTraditional CostgEcosystem CostgMarginal Costg06.Marginal RevenueMarginal Revenue1gNUser MultiplesWWVAinteractionuser ratelifetimeuser rateTargeted Potential User

122、sTransaction UsersTransaction UsersInteractionUsersInteractionUsersLifetime Usersuser rateEcosystem Value Multiplesuser interaction valueecosystem valueProduct valueA STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE19platform for c

123、ommunication,coordination,and operation among all ecosystem participants,and provide incentives to these participants.These elements collectively contribute to the establishment of a robust and comprehensive performance evaluation system.Metrics for the user engagement objective can be formulated ba

124、sed on user behaviors,such as user acquisition cost and the conversion rate of users advancing to the next level.For example,ThundeRobot,a Chinese company that specializes in the design and sale of gaming computers and accessories,gauges user engagement through metrics like downloads,daily active us

125、ers(DAU),monthly active users(MAU)of their own App,and the scale and activity of user groups across various channels,including Chinas WhatsApp-like WeChat.More sophisticated metrics,including the Net Promotor Score(NPS)and Customer Performance Indicators(CPIs),can also be utilized.The former capture

126、s the likelihood of a customer recommending the ecosystems products and services,while the latter consists of a curated collection of indicators that concentrate on aspects truly significant to customers rather than companies,such as efficient payment channels and complaint resolution rates.For inst

127、ance,Tuya uses a dollar-based Net Expansion Rate to assess revenue increases generated by the same customer group across accounting and operation periods.In terms of bridging the physical and digital worlds,metrics can be formulated based on scenarios.These scenarios outline the ways in which users

128、need,use,consume,or leverage IoT or IoT-based products.They can be categorized by location or activity,such as kitchen or fitness scenarios.These scenarios can be intensified and multiplied for product development and coverage purposes.The advantage of scenario-based metrics is that they enable comp

129、anies to understand and meet users needs more effectively by examining and expanding scenarios.Metrics for the complementor engagement objective comprise two interconnected elements:supply chain management and business cooperation.Unlike a traditional company,a platform owners distinction in supply

130、chain management lies in the emphasis on value co-creation,rather than pursuing the lowest-cost supply in an upstream-downstream relationship.For instance,ThundeRobot periodically assesses its supply chain companies using metrics such as delivery quality and timeliness.However,what ThundeRobot value

131、s most is their innovation capacities.It collaborates with its supply chain to design and produce differentiated products,like mechanical keyboards,which receive a significant welcome from customers.Concerning the business cooperation aspect,we can glean insights from the application of the BSC in c

132、orporate alliances among companies.This approach prioritizes strategic congruence,shared metrics,and operational initiatives over contractual cooperation clauses.12 As the business environment and competition continue to evolve,corporate alliances with relatively fixed cooperation clauses may soon f

133、ind their joint practices becoming obsolete.However,shared values and aligned strategies can anchor their common interests at an acceptable level.Take Xiaomi as an example.This company has implemented the ecological chain strategy to invest in and incubate a range of startups.Relying on its success

134、in the smartphone market,Xiaomi takes minority stakes and provides comprehensive support in product development,quality control,fundraising,supply chain management,branding,and industrial design.In return,the ecological chain companies develop and manufacture goods under Xiaomis brands,supplementing

135、 Xiaomis IoT products mix.The number of partner companies increased from zero to 77 in later 2016,further surging to 210 in early 2018.Collectively,these ecological chain companies create synergies and contribute to Xiaomis IoT infrastructure and product offerings.According to Xiaomis prospectus,the

136、 gross margin of ecological chain products surpassed that of Xiaomis own products in the IoT and Household Supplies Segment.Furthermore,Xiaomis client acquisition cost for its internet services was lower than that of other major 12 Kaplan,R.S.,Norton,D.P.and Rugelsjoen,B.(2010)Managing Alliances wit

137、h the Balanced Scorecard,Harvard Business Review,January.A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE20internet competitors,thanks to its popular hardware products.Importantly,the products of ecological partners could attract

138、 a significant customer segment iPhone users.13 Without sharing controls,the corporate alliances between Xiaomi and ecological chain companies are fundamentally built on shared value and aligned strategy.Both users and complementors serve as performance drivers for the infrastructure efficiency obje

139、ctive.As such,the metrics for this objective intersect with those of the other two objectives,such as customer complaint rate.However,this objective can also have independent metrics.One key indicator can be popularity,which could be gauged through metrics like the number of active IoT devices,devel

140、opers,users,or the gross transaction volume within the ecosystem.The ecosystem infrastructure establishes standards for participants,thus guiding resource allocations.It is crucial to introduce metrics to measure the consumption of the ecosystems“public goods or resources”by users and complementors.

141、In this context,user consumption pertains to the cost to serve and customer profitability analysis,where complementor consumption refers to the cost to deliver and complementor contribution analysis.An ecosystem is unlikely to flourish if its participants bear disproportionately high costs relative

142、to their revenues.13 Xiaomis mobile phones operate on customized systems,which are based on Android.A STUDY ON REVENUE MEASUREMENT AND PERFORMANCE EVALUATION IN AN IOT ECOSYSTEM IN CHINA:FROM PLATFORM OWNERS PERSPECTIVE21CONCLUSIONThe characteristics of IoT products,combined with relevant technologi

143、cal advancements,present new opportunities for differentiation for businesses.One such opportunity is the IoT ecosystem.Comprising three layers infrastructure,application,and platform the ecosystem business model can create unparalleled competitive advantages for the platform owner.These advantages

144、arise from network effects,the shortened user feedback loop,and efficient resource allocation.This is accomplished by allying with a selected range of complementary companies,offering an array of diverse,custom,and interconnected product mixes,and transitioning one-time transactional customers into

145、cross-over users.The transformation from a traditional business model to an IoT ecosystem can only be successful with suitable revenue measurement and performance evaluation.In revenue measurement,the platform owner should differentiate among one-time direct users,recurring direct users,and cross-ov

146、er users,considering their embedded relationships with the IoT ecosystem.For performance evaluation,the platform owner should utilize a comprehensive framework that includes objectives for user engagement,platform infrastructure,and complementor engagement.Metrics that illustrate the causal relation

147、ship between performance drivers and performance should be developed and utilized.Based on our analysis,we propose the following three initiatives for the platform owner to cultivate a thriving and sustainable IoT ecosystem:Initiative 1:Enhance User Acquisition,Retention,and EngagementThe advent of

148、data-driven IoT ecosystems has unquestionably accelerated the evolution of a personalized community economy.On the one hand,the user data gathered by the IoT ecosystem,which expands exponentially over time,can inform companies about customer needs.Conversely,through real-time data collection and ana

149、lysis,businesses can offer more targeted and personalized features to their users,fully leveraging the power of network effects.Initiative 2:Improve Entry Criteria,Support Systems,and Exit Mechanism for PartnersThe platform owner should establish clear entry and exit mechanisms and collaborate with

150、high-quality partners to ensure effective cooperation.It should also allocate resources to attract and support complementors,such as by providing technical services and developing toolkits.This dynamic support system will capitalize on the strengths of each partner and foster ecosystem co-creation.I

151、nitiative 3:Create and Enhance SynergiesTo maximize the ecosystems value,the platform owner needs to pay closer attention to the platforms growth capability.The platform owner must recognize that the co-evolution of all participants is crucial for the ecosystems sustainable development.It should enc

152、ourage the propagation of best internal practices within the ecosystem,particularly in the areas of product development,marketing,and customer services,leading to a more prosperous IoT ecosystem.For more information,please visit www.imanet.org/thought_leadership.Institute of Management Accountants,10 Paragon Drive,Suite 1,Montvale,NJ 07645