Beruflich Dokumente
Kultur Dokumente
Professor R. Pierantozzi
MGMT 806
Professor R. Pierantozzi
Contents
Executive Summary ................................................................................................................................................................. 3 Company, Products and Services ............................................................................................................................................ 4 Markets and Strategy .............................................................................................................................................................. 9 Financial Section ................................................................................................................................................................... 16 Management and Organization ............................................................................................................................................ 18 Milestone Events and Key Risks ............................................................................................................................................ 20 Appendix 1 Consumption Chain and Attribute Maps ........................................................................................................ 23 Appendix 2 Financial Projections ....................................................................................................................................... 26 Appendix 3 Product Visuals................................................................................................................................................ 26
MGMT 806
Professor R. Pierantozzi
Executive Summary
MuZcalc (pronounced mew-zee-calc) is a computer-based device that is used by individuals learning to play a piano who are in the beginner to intermediate levels of proficiency. It monitors their playing technique, compares their playing against sheet music instructions, and provides real-time recommendations on how to correct mistakes. The experience of using MuZcalc is similar to a teacher-led instruction session in terms of the amount and quality of feedback. However, unlike faceto-face training, it works inside the students home, eliminating the need for travel and recurring payments for weekly instruction. Marketing messages will be altered depending on which consumer segment is being targeted. For cost-conscious parents that cannot afford the desired extent of in-person tutoring, the message will be that of strong similarity of learning experience using MuZcalc versus in-person instruction at vastly reduced cost and lessened commute time commitments. For wealthier learners who value the in-person teaching experience, MuZcalc will emphasize its complementarity with traditional instruction while eliminating the need to procure and constantly transport sheet music scores to and from lessons. We will attract teachers with claims of improved student satisfaction and increased instructor productivity due to robust capabilities in sheet music editing, curriculum creation and progress reporting. Finally, a new ecosystem will be created for 3rd party content creators who will get ability to create their own personal brand and to receive a share of the companys revenues resulting from content sales to students and teachers. Should MuZcalc prove to be a commercial success, it will eventually be marketed in all developed countries within the Americas, Western Europe, East Asia, Middle East, Australia and New Zealand. According to our conservative estimates, US market alone is estimated at 8M households with 1 piano student of learning age, about as many in East Asia, excluding China. In China, the market is roughly double that of US. Latin America, Middle East, and Australia & New Zealand each represent about a quarter of US market. We assume that up to 15% of global learner population will be receptive to MuZcalc-based instruction and will be willing to pay the price for a la carte curriculum pieces or for device/content bundles aimed at 3 distinct learner proficiency levels. Most of the opposition to MuZcalcs success would come from the status quo in the world of piano instruction. In order to convince consumer and contributor stakeholders of the products worthiness, it is envisioned with superior features and unparalleled ease of use. Extensive live demonstrations and multi-media marketing campaigns will be rolled out in an effort to capture each of the target markets with salient and localized messages. Viral marketing and social media will be vital tools in MuZcalcs go-to-market approach. We would like to prevent strong opposition from piano teachers concerned with loss of revenues by offering them a commission on device sales and content purchases resulting from inclusion of our technology in their teaching practices and stipulating that all students participate in the program. Fortunately for MuZcalc, there presently are no other technology-based complete product alternatives to its offering. The biggest competitors are represented by SmartMusic, Steinway Etude and eMedia. SmartMusic is not marketed for piano users since its capabilities are limited to teaching orchestral or band instruments, Steinway simply acts as a tablet-based sheet music display with onscreen demonstrations of which keys to strike in order to play the score, and eMedia lacks compatibility with acoustic pianos that happen to constitute the majority of pianos owned by students. To prevent retaliation by SmartMusic, MuZcalc intends to in-license some of its technologies and signal its strong willingness to stick with the piano market where the incumbent has no presence. With Steinway and eMedia, the hope is that MuZcalc will get to market quicker with a more attractive offering and would be in a position to capitalize on its first-mover advantage and superior features.
MGMT 806
Professor R. Pierantozzi
MGMT 806
Professor R. Pierantozzi
and other feedback are displayed as an overlay on the digital music sheet. E-Ink technology will also be assessed as an alternative sheet music display. With the unique ID on each MuZcalc device, students, their siblings, parents and teachers can also create an online profile through our official portal to manage the music sheet content and access the feedback information. The online portal also serves as the primarily interface with the students for managing the setting of how information is displayed on the screen. Students can access and order learning programs online, manage lessons, and socialize with other MuZcalc owners in an online forum. The online portal will be free for MuZcalc owners, but charge for premium content like advanced curricula. We will create different modules for students, teachers, and parents for their respective needs. MuZcalcs portable design is intended to make it easy to bring along to traditional music lessons to supplement face-to-face learning. The teacher mode allows instructors to input homework assignments and track students adherence to the curriculum. The typical music score depicts minimal fingering, and stylistic and interpretational instructions. This is where the music teacher adds value by going over the score and inserting annotations for performance attributes like use of pedaling, tempo changes, sound intensity and even as far as replacing note sequences with combinations more suitable for the given students limitations/abilities. Content available through MuZcalc will include many of such annotations and enhancements as part of the baseline offering, and will allow teachers to use the device instead of the pencil-paper currently used to revise scores. In order to enhance earnings opportunities for the teachers, MuZcalc will offer an online marketplace for instructors to create and sell customized lesson plans, as well as provide their own unique interpretation guidelines for various musical pieces. Intermediate to advanced students wanting to practice specific performance styles popularized by famous instructors would get an opportunity to purchase such plans and interpretations for an additional fee, and be coached by MuZcalc accordingly. We firmly believe that success of a product like this depends on how well thought-out the usage experience is. For this reason, we have made extensive investments in identification and further detailing of usage scenarios that cover the most important workflows. The actual scenarios are listed in the appendix, but the guiding principles behind our approach have been: People value the traditional learning experience of the piano by overwhelming margin, per survey results. This dictates the style of the device as not being overwhelmingly techie and requires dimensions to project traditional-sized side-by-side 2 sheets of music. Because we foresee this device being carried (e.g. to teachers houses for in-person lessons), the device is collapsible into a transportable form in order to accommodate maximum number of piano styles and sizes (e.g. acoustic grand, acoustic upright and electric pianos). The device must conform to a variety of placements on top of various instruments. Extensive use of hand and head gesturing to confirm end users intent or to make selection among available options Complete avoidance of any speech recognition techniques so that we dont have to deal with intricacies of languages and accents that would be an impediment to this being a global product Ease of use is of paramount importance, as is complete avoidance of end user training in any of the products features. This is especially important since the product itself is to train people in piano playing and the last thing one would want is to go through extensive learning of how to use the learning tool
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Professor R. Pierantozzi
Students and Parents Less In-Person Teaching Usual In-Person Teaching Marketing Message(s)
Learning experience similar to in-person teaching at a vastly reduced cost. Game-like features to attract younger students. Reduced lesson commute time and expense. Instant feedback to student on errors. Up-to-date progress reports for parents. Unit pricing structure tiered by completeness of baseline repertoire. Access to optional curriculum from famous instructors. Lower unit price with pay-asyou-go model for individual content pieces included in the curriculum. Score marking updates during the lesson based on students performance. Curriculum updates based on progress. Instant feedback to student during at-home practice. Up-to-date progress reports for parents AND teachers.
Advertising Medium(a)
Participation in Google AdWords campaign with traffic directed to marketing areas of MuZcalcs corporate website. YouTube channel with high quality demo and user accolade videos. Social networking fan base on Facebook and Twitter. Piano learning-related websites (e.g. Piano World). Sponsorship of local piano competitions. Printed brochures and demo stations in piano retail locations. Printed ads in national and local publications for targeted customer ethnicities (e.g. local Korean language publications in Northern NJ, Taiwanese publications in Northern and Southern CA) Amazon online store. Appearances on Home Shopping TV channels. MuZcalc provides all users with software widgets that work on social networks e.g. Facebook, on e-Commerce websites, in blogs etc. that allow for informing ones followers/readers of its benefits. Successful referrals result in rewards e.g. free content, more ad space
We are planning for a parallel launch in both offline and online retail channels. For the online channel, we plan to leverage mostly grass root online marketing campaign to drive word of mouth about MuZcalc. We will build an official company portal to showcase the product features as well as taking online orders which is directed to our official store on Amazon. We will identify passionate bloggers who writes about teaching and playing piano, including teachers, student and parents, and send the top ten most widely followed bloggers a free MuZcalc for them to test it out, help them to discover the functions and features, and encourage them to write positive review about MuZcalc on their blog. We will leverage these materials, as well as those prepared in-house, to drive a PR campaign in online piano forums like Piano World, etc, to show case product features, share user stories, and also drive promotion events like distributing sales coupon. We will invest in shooting high quality promotional video about our product, and also launch a campaign to encourage our early adapters to upload their own videos of how they have been benefiting from our product, to enter into a user rated competition for a grand prize. We will feature those video on our website, as well as drive viral spread on SNS like Facebook, Twitter, YouTube etc to effectively push information about MuZcalc out to the online communities.
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We will carefully track all the above mentioned online marketing initiatives, measure their effectiveness in terms driving traffic to our official website and our official store on Amazon, and conversion into sales, and prioritize our resources around the most effective channels. Once a fully-featured product is available, we will be approaching Home Shopping Television Networks e.g. QVC, HSN etc. to run prime-time infomercials for MuZcalc. Our experience indicates that successful high-tech devices generate revenues of $8M-9M for each television infomercial appearance. The benefit of live show-and-tell highlighting MuZcalcs unique features to a broad audience of potential customers who fit precisely into our target demographic is difficult to underestimate. With appearance cost of $1.5M, going the Home Shopping Network route is an expensive gamble, but the combination of a quality product, and promised revenue windfall would justify the investment. For the offline launch, given the high concentration of piano learning in the Asian American community in US, we plan to tap into the community media outlets like World Journal for the Chinese community for a pilot campaign to test out the market. Those ethnic group media outlets are traditionally cheaper than major US publications, and have devoted more space for advertisements which are well read, especially by Asian parents living in the US. We can tackle retail stores and music schools by convincing brand-name piano manufacturers to bundle MuZcalc with their instruments in order to drive up their product sales. The relatively small number of manufacturers makes for an ideal target in face-to-face sales negotiations, an option superior to approaching every retailer separately. Business Model
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Professor R. Pierantozzi
Operations MuZcalcs development is governed by the complete product philosophy. As such, it should be easy to sell, easy to buy, easy to use, easy to maintain, easy to support, and finally, easy to sunset. The consumption chains and attribute maps for status quo, MCO and MuZcalc can be seen in Assumptions Tested CheckPoint Event
Technological Feasibility completed Tablet App for Pros launched Consumers' willingness to use the device proven US teacher support secured NA mainstream market penetrated First competitive reaction 3rd party content network created Going global Retail channels added, instrument manufacturers partnered 1-5 6-7 8-15 8, 16-28, 34 8, 17, 27, 29-38 55-59 17, 27, 34, 39-42 17, 27, 31, 34, 43-48 17, 27, 34, 49-54
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Professor R. Pierantozzi
Appendix 1 Consumption Chain and Attribute Maps (please note that MuZcalcs consumption chains represent the capability ladder). Coupled with our ambitions of eventually making MuZcalc available to consumers in industrialized nations across the globe, we have to be highly aware of financial commitments that are needed to operate such a globally-marketed offering. In order to preserve our cash, especially during the critical early stages of MuZcalcs development and marketing efforts, we are envisioning a phased approach that would gradually expand MuZcalcs availability to an ever-increasing number of consumers in different geographies. Below is a summary of our phased go-to-market approach. Each phase includes operational considerations comprised of FTE count, timelines, and projected costs and revenues.
Objectives Phase 0 Demonstrate technological feasibility In-license IP (if prudent) Phase 1 Develop app w/ limited features (electronic sheet music organizer w/ gesture recognition) Sell to piano-loving technocrats Incorporate cloud-based backend operations Bring in some revenue Year 1, Quarters 2-3 8 employees $0.6M $0.6M Phase 2 Can MuZcalc mimic human instruction? Are students willing to learn from MuZcalc? Are parents willing to pay for the experience? Phase 3 Neutralize potential retaliation by human teachers (incentives, incentives, incentives) Good Teacher + MuZcalc = Great Teacher Learn to mass-produce MuZcalc Develop selling, support and servicing competencies Year 2, Quarters 2-3
Timeline
18 Employees, 10 Contractors $1.8M $0.8M Phase 4 Enter mainstream North American market Target consumers through online ads, social networks, viral videos and printed ads
57 Employees, 10 Contractors $4M $1.2M Phase 5 Create a marketplace for 3rd party authors to sell custom learning curricula (with a fat commission to us!) Can we support large numbers of contributors? Can we manage micro-sites? Can everyone get paid correctly and on-time? Year 3, Quarter 3 157 Employees, 7 Contractors $4.5M $16M
Year 2, Quarter 4; Year 3, Quarters 1-2 105 Employees, 10 Contractors $10M $36M Phase 6
Phase 7
MGMT 806
Objectives
Professor R. Pierantozzi
Expand into Australia, Western Europe, South America, East Asia, Middle East Develop localized advertising and marketing approaches Provide multi-lingual customer support Create regional order fulfillment centers Year 3, Quarter 4; Year 4, all quarters; Year 5, Quarter 1 296 Employees, 3 Contractors $47M $652M
MGMT 806
Professor R. Pierantozzi
Core features in this free app for Pros include the ability to identify and display sheet music corresponding to what you are playing, page-turning via gesture recognition and management of electronic sheet music. Targeted at piano-playing technocrats, the app is also intended to test out key features of MuZcalc, generate buzz and ultimately provide a small ongoing revenue source. If the App does not take off, we need to assess whether the music score sales can be a lifestyle business. If not, we should again try to sell off our IP. Phase 2 Deploy Mechanical Turk Once technological feasibility of MuZcalcs technology has been demonstrated, we will need to establish that consumers are willing to be taught by a device like MuZcalc as opposed to a live teacher. Before we commit major resources to build out the full-blown product, we will try to work out market uncertainty and teaching protocols by using a device that is missing most of the expensive software for real-time analysis and feedback. From the users perspective, there will be nothing different about the way the device looks and functionality will appear exactly as advertized. But rather than having an elaborate set of algorithms to analyze students playing and provide feedback (the development of which is expected to be the bulk of our R&D expenses), we will be relying on whats essentially a high-end version of a Mechanical Turk. We will contract with a sufficient number of qualified piano instructors who will sit in front of computer workstations while listening to and watching students as lessons are taking place. These instructors will send feedback through an inexpensive user interface and they will be paid hourly. We dont foresee a shortage of individuals interested in such jobs, especially given the current economic climate. Participation in this Mechanical Turk setup will provide a useful source of supplemental income to the likes of conservatory students and unemployed young graduates. If we discover that students are not able to or interested in learning off MuZcalc product, then we will abandon the full-blown venture and revert to the tablet-only approach for advanced player (aka the lifestyle business). Phase 3 Grip US Teachers We will enter a limited segment of North American market by appealing to both unaffiliated and institutional teachers and positioning MuZcalc as a great add-on to human instruction. This is meant to neutralize teachers by offering them discounts on devices they purchase for themselves and incentives to incorporate MuZcalc into their curriculum e.g. commissions for device sales resulting from student referrals. We will encourage teachers to begin differentiating themselves from the traditional competitors with statements of improved student and parent satisfaction, reduced need to carry around printed music scores, real-time performance feedback between lessons, and performance tracking reports that are available exclusively on MuZcalcs platform. We will use the influence network to reach teachers e.g. local certification boards that assess students piano playing proficiency. We will show respect to the teaching professionals by soliciting their feedback in forming our library of musical pieces. We will source baseline sheet music from both public domain and copyrighted sources. In the latter case, we will be negotiating revenue-sharing agreements from MuZcalc distributing such copyrighted materials for inclusion in learning curricula. Once the rights are cleared for each score, it will be digitized into an electronic music format using our proprietary technology. MuZcalc content analysts will eventually provide additional annotations. But for now, we will be outsourcing content to the same instructors who used to serve as the unseen Mechanical Turk backend of the prior phase. These individuals would have by now gained proficiency with our platform and seen how much potential it offers to content contributors. By not employing them directly, and rather paying a
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commission from sale of each piece, MuZcalc will optimize its cash flow and avoid fixed costs associated with additional FTEs. All content will be accompanied by an AV recording of reference performance produced using MuZcalc device through the down-facing cameras to capture the visual of performers hands over the piano keys and built-in microphone for the sound. A complete content piece consisting of the markedup score, the reference AV recording, marketing descriptors and pricing details is uploaded into the backend cloud servers and made available for inclusion in teachers curriculum. We see Phase 3 as less of a Go/No Go indicator and more as an opportunity to diffuse attacks from our major competitors. If teachers revolt, we will revise future success projections, increase marketing expenses, and move forward. Phase 4 Woo US Consumers MuZcalcs second official release will go out to English-speaking North American consumers. By focusing on a limited geography and avoiding foreign language support, MuZcalc will preserve valuable financial resources and channel them towards achieving top notch user interface functionality. Consumers will gain awareness of MuZcalc through combination of online ads, musicrelated blog postings, a YouTube channel with high quality promotional videos and printed marketing campaigns directed at high geographic concentrations of targeted prospective customer ethnicities. At the risk of stereotyping, we will be looking at over-achiever Asian American families as the first segment to conquer. We believe that this segment is most receptive to learning methods that involve high repetition, rigorous dedication to constant improvement, progress reporting and disciplined practice. Phase 4 will help us scale up important operational processes from incorporating offshore manufacturing ability into our internal value chain to outsourcing all cloud-based IT operations to a 3rd party, assuming it will result in better cash flow scenario for us. After all, the bulk of MuZcalcs analytical capabilities will be implemented as software running in a cloud environment. The crucial capability for MuZcalc during this phase is to support online sales, including free trials, money-back guarantees and multi-payment purchase plans that will attract North American consumers. Order fulfillment will be done from a centralized location. The last capability that warrants special attention is customer support. Our preliminary analysis of consumer preferences indicates that manufacturers inability to figure out why a device is malfunctioning and carry out a quick and effective corrective action is a strong enrager in consumers eyes. If MuZcalc fails to become a mainstream product, we will revise down future forecasts, and approach international expansion with caution. Phase 5 Getting 3rd Party Authors to Contribute Learning Curriculum Content Once MuZcalc is a proven, viable product with a large install-base, we can then stop making our own content exclusively and open up the ecosystem to allow 3rd party authors to create and sell custom lessons. Our earlier outsourcing partners, the instructors from the Mechanical Turk phase that became baseline content authors, will now be in the heart of the new growing ecosystem of 3 rd party content providers. In exchange for their past loyalty, they will receive an opportunity to be first to market their custom-built content and curriculum and start establishing their recognizable professional persona in musical instruction. These early community participants are expected to spread the word about professional benefits of joining MuZcalc network to their industry colleagues through in-person conversations and online social media. The new key capabilities needed for the company in growing this community are: features within MuZcalc that allow for additional 3rd party content creation/editing; online management of ones
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curriculum library, marketing messages, persona, brand and finances; proficiency in micro-site creation within our social network; various aspects of payment processing involving revenue splits between us and content providers. Should we fail to retain 3rd party contributors, we will need to revise down MuZcalc attractiveness and prepare to author all curricula internally. Phase 6 Going Global Now that MuZcalc is a proven product that can be manufactured, sold and maintained for North American customers and supplemented by a strong network of 3rd party content providers, we will add multi-lingual capabilities for international marketing efforts. We will focus on developed countries in Western Europe, Latin America, Australia and New Zealand, the Middle East and East Asia. We are considering markets where consumers have sufficient discretionary income, the cultural interest in music instruction and can appreciate the savings it offers compared to traditional in-person instruction. The order of international releases will be based on technological complexity of incorporating various writing systems. We will start out with Latin alphabet based languages due to great degree of technological similarity to English language software. Covering Spanish, Portuguese, French, German and Italian will go a long way in making MuZcalc an attractive product for consumers in all of Western Europe and Latin America. We will then turn our attention to 3 languages with Far Eastern character sets (Chinese, Japanese, Korean) and finally, to right-to-left Arabic language to gain attention of affluent Middle Eastern consumers. Given the spread of English in Israel, especially amongst the educated population segments that are most likely to be engaged in piano learning, Hebrew does not appear to be a worthy investment for a language plug-in. Sales will continue in online channels, but depending on our international success, we may have to expand the number of fulfillment centers to be located closer to target markets. The same thought process applies to localized advertizing and customer support capabilities. We will phase in our global expansion based on our ability to develop the language plug-ins for particular language structures, our ability to navigate government restrictions and our ability to master distribution system challenges. If some expansion plans dont work out, we are prepared to stay out of certain markets and revise down forecasts. In the worst case, we may abandon a global strategy altogether and focus on sales in North America. Phase 7 New Retail Channels and Partnerships With MuZcalc now occupying significant market amongst piano learners, teachers and content providers globally, we can now explore the opportunity of co-branding with piano manufacturers and opening up other piano distribution channels through specialty retail stores. In order to entice prospective buyers to purchase the co-branded version of MuZcalc at premium price points, piano manufacturers will rely on famous musicians that are contracted to advertize their products to put their names on content pieces only available to consumers that buy the premium co-branded version. Depending on how unique the manufacturer would like MuZcalcs appearance to be, we will offer a variety of packaging choices. The high-tech appearance attractive to more innovative manufacturers (e.g. Yamaha and Kawai) can be differentiated from a classically-shaped piano lamp that followers of Steinway and Bosendorfer would find more attractive. The key new capability involves adjusting MuZcalcs design to be suitable for white-labeling such that manufacturers insignia, color schemes etc. can be applied to the product. Co-branded devices will be distributed through piano stores that sell partner manufacturers instruments. At the end, both we and the piano manufacturers have to receive the agreed-upon share of MuZcalcs revenues arising from bundling of our products.
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If co-branding works well, we could use the information we gather from working with these retailers to develop additional products that we can sell through piano manufacturers and retailers. If partnering with retailers does not work well, we may need to concentrate on beefing up our online channels. Market/Industry Analysis The competitive landscape of musical instruction industry consists of a mix of mostly low-tech alternatives (e.g. DIY printed and electronic publications, and videos) with an emerging segment comprised of software-based solutions for desktop and mobile device platforms. Ultimately, none of the existing options can match the quality of experience and speed of learning available from inperson instruction with a qualified teacher. With status quo mostly based on one-on-one instruction, consumers switching cost among other alternatives is low and so is affinity towards new options. Lack of stick-to-it-ness is largely attributable to alternatives not presenting a complete solution to learners needs. However, low entry barriers mostly found in the form of IP and relatively low capital requirements for new entrants have led to a proliferation of competitive offerings. Currently, teachers face very little threat of substitution, but each of the technology-based options can easily be substituted by another comparable solution. The industry is supplied by traditional sheet music publishers that have been in business for generations and have produced books of musical scores annotated by editors employed by publishing companies. Other teaching and non-teaching professionals have taken on further annotation of musical scores that get included in unaffiliated teachers and school-wide curricula. Sheet music publishers have little bargaining power, since a lot of musical content required by a typical student to achieve even higher levels of proficiency can be found in the public domain free of charge. Teachers and other annotators, on the other hand, are perceived as much more valuable since their interpretations are created to accommodate specific needs of individual students. Learners and teachers that purchase instructional materials represent the industry consumers. Due to low bargaining power of suppliers and low switching costs amongst learning technology alternatives, consumers wield significant bargaining power. MuZcalc attempts to appeal to consumers liking of in-person teaching experience by offering a similar experience enabled by cutting-edge technology unmatched by any other high-tech competitors. Customer Analysis MuZcalcs target market consists of: parents of 5 17 year old piano learners; unaffiliated and institutional piano teachers; and non-teaching piano professionals interested in authoring custom learning curriculum for financial reimbursement. All targeted students are assumed to respect the power of technology-assisted learning and desire a serious course of study that allows for daily instruction and feedback with a tight focus on formal technique, performance tracking and progress reporting. We believe this target will be highly motivated to pay a premium for a superior product and to add additional features throughout a customer lifetime of ~4 years. In order to further segment the learner market, we assume existence of those consumers that prefer vastly reducing or completely eliminating the need to take lessons from a human instructor once they have purchased MuZcalc, as well as those who want to maintain strong relationships with their teachers and would rely on MuZcalc as the device through which the teacher would communicate learning curriculum and monitor results. Every three years, the National Association of Music Merchants commissions the Gallup Organization to conduct a national telephone survey of U.S. households to gather some very detailed statistics. According to the 2009 survey, 58% of U.S. households have at least one member who plays a musical instrument, and 30% of those who play an instrument play the piano. Therefore, about 17.5% of U.S. households have at least one member who plays the piano. The U.S. Census
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indicates that there were 130 million households in the U.S. Accordingly, we estimate that 17.5% of 130 million U.S. households play the piano. The same survey tells us that 72% of players first learned to play when they were between 5 and 11 years old, 14% between 12 and 14 years, and roughly 5% each in the 15 to 18, over 18, and under 5 categories. Of the musical instrument players across households, 35% fall between the ages of 5 and 17, when 90% of players first learn to play, so we will consider this demographic as our total addressable market. According to the U.S. Census, there were 130 million households in the U.S. in 200, so the number of households that might have a use for our product would be: (130 million households) x (17.5% households with a piano player) x (35% players of learning age) = 8 million U.S. households with a piano learner. By extrapolating % ownership of tablets in the US general population to the piano learner segment, we can conclude that approximately 2M learning age students have access to tablets. This is an important number as it informs the market size for the MuZcalc variation that incorporates the tablet as a means of music score display plugged into the MuZcalc frame/sleeve. (see Appendix 3). Data for China is somewhat less comprehensive, but sources such as Music Trades magazine estimate the number of students to be between 30M-40M. However, we have taken the more conservative estimate of 16M in our financials to reflect roughly double the US market. Competitor Analysis We anticipate several sources of competition for our product. The first is the status quo. Parents know that in-person piano lessons work and may be skeptical of the capabilities of an electronic device, both in its ability to monitor and teach the material, and in its ability to motivate or push their child to study. We may face resistance from schools and piano teachers themselves, since MuZcalc has the potential to divert revenue away from them. We would need to stress its complementarity to in-person lessons as an additional practice tools, and emphasize the features that the teachers could use to create lesson plans and monitor the students progress as part of an integrated teaching curriculum. We might initially sell to teachers or schools at a discounted price to speed up trial, adoption, and recommendation. Finally, we already see a number of electronic devices and software on the market that offer piano and music tutoring. We will need to differentiate MuZcalc as a high-quality and complete solution that parents would be proud to own. The device would need to deliver real-time feedback in the most natural way possible and should be a joy to use. On top of this, the key factor will be the live fingering analysis and feedback. This is a technological innovation that addresses a very clear need in the piano learning process, and we will have the technology and implementation protected by patent to ensure that we retain this unique advantage. All of the software-based high-tech products out there have the fundamental flaw of being nowhere near the experience that students get from face-to-face instruction of a qualified teacher. The following are best-of-breed software-based solutions on the market today, including their price points, features and shortcomings: SmartMusic This is the most established competitor that comes closest to analyzing a students performance. Their analysis is not real-time, and their display of showing where student is at in the score is too simplistic, which is fine for individual band instrument scores, but does not work for the piano. In fact, SmartMusic is neither targeted nor marketed to piano learners. Its target audience is public school band and orchestra teachers and students learning to play individual instruments. Attractiveness of SmartMusic is further reduced by the fact that in order to analyze students performance, the software requires a microphone of higher quality than typically found inside of a students computer (an add-on one-time purchase between $20-$40). Teachers are able to construct learning curricula out of available content pieces, but cannot customize sheet music
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MGMT 806
Professor R. Pierantozzi
instructions for individual students needs or for desired interpretations or playing styles. However, being a publicly traded company, it provides a wealth of information on its financials. Its revenues increased from $5,382,000 for the year ended December 31, 2009 by $1,054,000 to $6,436,000 for the year ended December 31, 2010. This is impressive for a product that comes with an annual subscription price of $140 for educators and $36 for students, which includes unlimited use of software with all available instructional pieces. Steinway Etude This is a free application where the consumer pays for the content. The app simulates piano playing on the iPad screen as opposed to real piano, lacks the real-time analysis, lacks the ability for one to keep track of where ones at on the music score, and has no customizable content. However, its the first indication that a brand-name piano manufacturer is willing to attach its reputation to a software-based learning tool. This is an industry dynamic we intend to capitalize on as part of our eventual market expansion. eMedia Bills itself as the publisher of the worlds best-selling and award-winning series of music tutorial CD-ROMs. It claims to feature audio recognition technology that allows the user to receive real time feedback whether playing on an electronic keyboard or acoustic piano. This is a deceptive claim however, as it appears that the real time feedback technology does not work well with acoustic pianos. This means that, like most other gimmicky products, the eMedia offering is limited to working well only with MIDI keyboards, which are not the preferred instrument of our target market. The CD-ROMs do offer 300 lessons in scalable full-screen resolution. The over 70 videos can also be viewed in full-screen. The latest version of the eMedia product was priced at $59.95. Like MuZcalc, eMedia also understands the importance of the traditional piano instructor to its success and has developed an Educational Edition, including multi-user lab packs and site licenses. A major detractor of eMedia is the fact that it does not watch the performers hands and do not provide suggestions on fingering. Gimmicky mobile apps Games and widgets galore for musical instrument simulation that use computer/mobile device screens as opposed to actual instruments. These are targeted at casual, impulsive laypeople with no musical learning experience, and most often with no commitment to mastering any instrument. Examples are Magic Piano and Miso iPad apps. Competitive Response Analysis and Entry Strategy It seems that nobody today has put the set of technologies into a product offering like MuZcalc. Therefore, to create the barrier for entry, there needs to be a patent or a series of patents that applies to the product, that do not infringe on any technology-specific patents that have not been thought-of as a complete product. The next step is to go to these specific patent holders and offer mutuallyattractive in-licensing terms (i.e. part of the judo arsenal of techniques for new entrants into markets where incumbents hold potentially powerful positions). We are not foreseeing head-to-head conflicts. But we do want to grip potential competitors by offering them an attractive slice of the pie that wouldnt be there if it werent for us. This consistent approach of not offending potential competitors extends to gripping teachers with commissions, referrals and discounted prices. But as John Steinbeck once wrote about the best laid schemes of mice and men, someone will try to retaliate. Our defense path will be to mount a PR campaign touting our superior product offering while preparing to engage in price competition. Consumers be asked to pay less for content, and if necessary, we will offer sweeter deals to content contributors to remain loyal to our platform. We will also reach out to members of the ecosystem that we have created who are now getting steady revenue streams from their contributions because of our innovation, and give them even more incentive to step up to the plate in creating favorable public impression of our offering. Hopefully, MuZcalc being attacked by an established rival is not a likely scenario. What may be a more likely possibility is imitators trying to copy our offering while potentially infringing on our
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MGMT 806
Professor R. Pierantozzi
intellectual property. To be prepared to attack such offenders, and to sustain strategic competitive advantage, from its inception MuZcalc will be maniacally focused on laying claim to valuable IP components by filing patents, trademarks and copyrights. As of this writing, MuZcalcs architecture is far from finalized, but preliminary feature analysis suggests that the following mechanical, electronic and software components contain original intellectual property claims: Pivoting mechanisms allowing for different angles of the projection surface. Projection screen mechanisms Packaging of electronic devices into various compartments within the device Software components interpreting sheet music Software components interpreting audible sounds against instructions on the sheet music, potentially coupled with teacher-specified comments The idea of the product itself Revenue Model MuZcalcs revenue model involves pricing the device at variable cost and making most of the money on content. Our research of consumer preferences confirms that there are those who are financially strapped and want to minimize the expense and time commitment of in-person lessons, versus those who value the in-person experience and would rely on MuZcalc as a supplementary learning tool. Our bet is that the former segment will be attracted to one of 3 device-curriculum bundles that would allow the learner to progress through increasingly higher proficiency levels depending on which bundle is purchased. Consumers that are looking to supplement in-person instruction with MuZcalc for guidance during self-study exercises would not be interested in paying for any additional content as part of a bundle, since its up to the individual teachers to set the curricula. Every piece of content selected by a teacher will be paid for either by the student or by the teacher or by splitting the cost per the agreement between the 2 parties, thus generating an ongoing revenue stream for MuZcalc. We estimate that every piano learner receives 1-2 new pieces per week. In addition to the pre-paid and the a la carte subscriptions, students can purchase additional content that may have been authored by us or 3rd party contributors to include as part of their learning. All such content pieces will be individually priced and our cut of sales revenue will depend on who authored the piece, and what revenue sharing agreement may govern involvement of a 3rd party contributor.
Financial Section
A major assumption for our financial statement is that device sales will account for our variable cost structure i.e. the price for hardware will be equivalent to the summation of hardware variable costs and the variable overhead costs. This is why our model is based entirely on ensuring that revenues from content will cover all of fixed costs. As a rule of thumb, we also assume that any geographic market will become saturated once MuZcalc gets to about 15% share. This is consistent with the numbers necessary for a technology to be considered a dominant design. We assume we will get through about 5% of market share per calendar year.
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MGMT 806
Professor R. Pierantozzi
Below is what we expect to see year by year in terms of cost, revenue and cash flow:
Year 1 1,056,250 1,758,125 (701,875) Year 2 $ 13,715,000 $ 8,253,958 $ 5,461,042 Year 3 $ 148,850,000 $ 19,089,167 $ 129,760,833 Year 4 $ 434,525,000 $ 31,550,000 $ 402,975,000 Year 5 $ 636,350,000 $ 33,275,000 $ 603,075,000
$ $ $
Here are our fixed cost assumptions around FTEs, Rent and Infrastructure:
Assumptions Marketing FTE Cost Administrative FTE Cost Engineering FTE Cost Customer Support FTE Cost Contractor FTE Cost Executive FTE Cost Equipment Cost/FTE Year 1 62,500 312,500 Year 2 125,000 625,000 Likely 125,000 100,000 150,000 75,000 50,000 200,000 5,000 Year 4 500,000 2,500,000 Year 5 1,000,000 5,000,000
$ $ $ $ $ $ $
Rent Infrastructure
$ $
$ $
$ $
$ $
$ $
The complete financial model is in the Appendix, but the following conclusions can be reached: 1. For us, profitability is equal to cash flow positivity since we do not have any delays in getting paid. The business will turn profitable during Year 3, Quarter 1. 2. Assuming that $100M in EBITDA is the minimum required amount to support the liquidity event, we have done sensitivity analysis on this model. The likelihood of reaching $100M by the end of year 5 was found to be 100% with regular forecast, and 90.4% with the pessimistic forecast. Sensitivity analysis indicates very high probability of financial success for MuZcalc. We performed it on the parameterized assumptions using triangular distributions on the assumption fields with minimum, most likely and maximum numbers, and a Latin Hypercube simulation. The values used were the most likely with an average range of 26%. Even under the haircut scenario that assumes doubling of costs and halving of revenue, the probability of reaching at least $100M is 65.3% in year 4 and over 90% in year 5. Here is a summary of how our scenario and
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MGMT 806
Professor R. Pierantozzi
the VC haircut scenario stack up in probabilities of meeting $100M in years 3-5 of our venture: Year 3 4 5 Our Scenario 60.0% 99.7% 100.0% N/A 65.3% 90.4% Haircut Scenario
3. It is foreseen that angel/VC financing will be required to fund MuZcalcs development. The critical path to applying for any outside financing involves development of a ProofOf-Concept demonstrating critical ability to determine which musical piece is being played by hearing the sounds out of the instrument, followed by display of appropriate sheet music in sync with performance, concluding with real-time performance analysis against the instructions contained in the sheet music. We will assume that proving that the software works will take one software engineer three months to accomplish. Money for this will come out of founders pockets and with nobody drawing a salary. After POC, external financing will be needed to get us to the point of financing operations and growth out of cash flow, which happens in early year 3, quarter 1. Under our scenario, we predict needing $9M in venture money to finance activities up to this point, after which substantial money starts flowing in. By the end of year 3, we expect more than sufficient amounts of money for both online and TV infomercial activities so as to expand our product sales dramatically. Under the haircut scenario, the predicted VC amount needed is closer to $15M. Below is the year by year revenue, cost and cash flow prediction under the haircut scenario:
Year 1 528,125 3,516,250 (2,988,125) Year 2 $ 6,857,500 $ 16,507,917 $ (9,650,417) Year 3 $ 74,425,000 $ 38,178,333 $ 36,246,667 Year 4 $ 217,262,500 $ 63,100,000 $ 154,162,500 Year 5 $ 318,175,000 $ 66,550,000 $ 251,625,000
$ $ $
To increase the predictive power of the simulation, we may want to consider splitting up some of the key assumptions by year and provide an independent simulation for each.
MGMT 806
Professor R. Pierantozzi
Both CTO and CFO are yet to be recruited. The CTOs responsibility is technology POC and being in charge of all technologies. The CTO should possess extensive background in both computer hardware and software-based solutions for complex computational problems. Music background and training is a must. The CFO should have background in finance, operational planning, execution etc. The company will hire a professional CEO. The CEOs responsibility is to attract venture financing and strike strategic relationships with hardware manufacturers (to make this product), with premium musical instrument manufacturers for the co-branding/content development opportunities. The CEO will be the public face of the company and accountable to the Board of Directors. The company will rely on outside legal counsel who will be retained on contractual basis, and will receive reimbursement for services as limited cash payments and a share of stock in the company. The legal counsels responsibilities will include, but not be limited to: Executing provisional and final patent applications Reviewing contractual terms Protecting companys interests against infringements and other potentially hostile external actions Beyond the executive team, we need the following resources at the minimum after successful architectural POC that demonstrates viability of the software component: Reporting to the CTO: Musical analysis software resource General application development resource Mechanical engineer Electrical/electronic engineer Infrastructure Architect Reporting to CEO: Product manager with marketing and graphical/artistic background (to handle initial product styling, packaging and promotional needs) Legal counsel Reporting to the COO: Computer infrastructure and operations specialist (aka CIO) The company shall have a Board of Directors. The Board will consist of the original founders, legal counsel, two seats for venture capitalists participating in the first round of investment and two outside advisors with no corporate positions who will accept equity only for their contributions to Board activities. The Chairperson is going to be Daphne while Angela is the CEO, and once a professional CEO is hired, the President title may go to Angela if agreed by the Board members. Once the company starts to grow, there will be additional resources added to the aforementioned skill sets. And once the product components have been put together and validated with the internal on the cheap focus groups as mentioned before, we will take on 1 Sales Specialist reporting to the CPO. The role of the sales specialist will be first and foremost, to learn how to sell this product. There is nothing like it out there. We have our current expectations of payment/ownership/distribution channel options, but they may evolve such that competency needs to be developed first before we can grow our sales force to a big enough size where we can get the right sales volume. At this point, we will bring on a Head of Manufacturing reporting to the COO.
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MGMT 806
Professor R. Pierantozzi
Administrative Personnel
CTO
COO
CFO
CPO
Head of Manufacturing
Outsourced Personnel
Hardware Manager
Infrastructure Architect
Outsourced Personnel
Contractors
MGMT 806 Professor R. Pierantozzi By: Angela Chadwick, Daphne Lin 7 Prove the ability of MuZcalc to identify the musical piece being played 8 English language of MuZcalc's interface is not a detractor given multiculturalism of North American consumers 9 Mechanical Turk version of the device can be built with resources available 10 Mechanical Turk version of the device can be built per cost projections 11 A legally-airtight contract is in place with study participants without revealing use of Mechanical Turk backend 12 Able to attract sufficient number of Mechanical Turk actors at our projected pay structure 13 Able to attract enough study participants meeting criteria and willing to participate on stipulated terms 14 15 16 17 18 19 Consumers accept MuZcalc as a full-fledged piano teaching device Consumers are receptive to the proposed MuZcalc cost structure Manufacturing relationships is working out as planned Cloud capacity is adequate and falls within the estimated pricing Marketing message towards teachers are appealing Incentive structure to teachers are attractive enough, no need to revise projected costs
20 Local performance certification boards are receptive to our marketing proposals 21 Enough teachers whose students get certified by these boards show interest in MuZcalc 22 Teachers are willing to provide feedback on which musical pieces to incorporate into the electronic library 23 An attractive-enough library can be built out of public domain plus sufficient number of contributions from willing publisher participants 24 Publishers are willing to license their printed content on stipulated terms 25 Mechanical Turk contributors agree to their new role of MuZcalc content creation at the proposed compensation structure 26 Software features coverage is complete, product quality meet expectations for a full-blown national release 27 Support organization is meeting Service Level Agreements (SLAs) 28 If 2nd round of financing is required, sufficient amount can be obtained on adequate terms 29 Marketing message towards mainstream NA consumers are appealing 30 Price points are set correctly for different product/content bundles 31 There exists sufficient number of new customer referrals from existing customer social networks 32 33 34 35 36 37 38 39 Customer service can scale up to meet new SLAs Manufacturing can scale up to meet new SLAs Solution architecture, including cloud backend, scales up to meet performance requirements Retention rate amongst customers who start with free tials is at least 90% Consumers are receptive to installment plans paid by credit cards or bank account withdrawals Delinquency rate on payment plans is no higher than 10% Product defect rate requiring device replacement is no higher than 1 in 1000 units Mechanical Turk contributors that became our baseline content developers are now willing to be nucleus of new 3rd party ecosystem
40 Referral network is efficiently attracts enough people 41 Revenue-sharing agreements for content is appealing to potential contributors 42 Company's financial performance enables removal of VC interest through a complete/partial liquidity event i.e. someone will buy them out 43 Future expansion phase can be financed through accumulated resources with no involvement of outside funds 44 Accommodating each of the planned language plugins is feasible within existing architecture 45 Costs of each planned language plugins are in line with projections 22
MGMT 806 Professor R. Pierantozzi By: Angela Chadwick, Daphne Lin 46 Prospective customers in each target market are receptive to localized advertizing messages 47 48 49 50 51 52 53 54 Proposed pricing holds for each target market Planned fulfillment center locations can be obtained at acceptable costs There exist piano manufacturers that are open to associating with MuZcalc Onboarding costs for each manufacturer will be picked up by the manufacturer The public is receptive to the premium device and content price points The revenue-sharing model is acceptable to each manufacturer We can perform adequately within value chain of 3rd party storefront and online retailers e.g. Best Buy Device architecture can be retrofitted into a variety of form factors to support different manufacturers' preferences for appearance
55 Competitor's response does not catch MuZcalc by surprise 56 If attacked by a non-copycat competitor, our marketing messages will be effective in convincing consumers that our complete product is a superior offering 57 Our cost structure will be low enough to sustain a 20% price reduction and a 20% commission increase to content creators 58 A successful competitive campaign will not take away >20% of available market at the time of its launch 59 If attacked by a copycat infringing on our patents, we will have sufficient financial resources and adequate legal representation to mount an offensive (est. non-recoverable cost of offensive is $500K) CheckPoint Event Technological Feasibility completed Tablet App for Pros launched Consumers' willingness to use the device proven US teacher support secured NA mainstream market penetrated First competitive reaction 3rd party content network created Going global Retail channels added, instrument manufacturers partnered Assumptions Tested 1-5 6-7 8-15 8, 16-28, 34 8, 17, 27, 29-38 55-59 17, 27, 34, 39-42 17, 27, 31, 34, 43-48 17, 27, 34, 49-54
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MGMT 806
Professor R. Pierantozzi
Learning Software
Research Software Word of mouth referral , ads Searching for user friendly software
Purchase App
Commute to lessons Parents driving or teacher house call for extra fee
Purchase Device Via cash, check, credit card online, payment plan
Purchase, Receive, Register and Calibrate Device Identical to Parents & Kids
Evaluate Opportunity Evaluate ability to make money by authoring custom content and developing learning curricula
Purchase Software Payment via cash, check, credit card online or at store
Purchase music
In person instruction Real-time human, specific instruction Help with pageturning Teacher can motivate
Play music
Install Software Use Software User selects music. Product displays sheet music, shows user what to play. May give feedback
Provide Content Obtain MuZcalc baseline score, annotate as necessary Record sample performance according to annotation Wait for MuZcalc approval
Annotate Music
Opt for More Features Additional music libraries to incorporate into their custom curricula, online social media network
Learn to Play Piano Student plays while device analyzes rhythm, notes, intensity, etc. System projects teacher-prescribed exercises
Upgrade Software
Monitor Progress System tracks time spent on exercises, number of attempts, recurring problems and progress
React to Sales/Feedback Review sales data and feedback, make curricula adjustments
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MGMT 806
Professor R. Pierantozzi
Features Additional music libraries, sheet music analysis, learning curricula, online social media network
Refer MuZcalc for Bonus Use referral widgets for social networking and eCommerce sites
Tolerables
Having to keep track of and drag around sheet music Instructors lack of information about students actual practice
Differentiators
Psychological effects and performance results from verbal feedback Instructor can demonstrate live and in person Can provide instructions addressing individual students strengths and limitations Weekly fees Commute Scheduling Must wait until next lesson for feedback
Dissatisfiers
Ability to hear piano along with other instruments Provides standard fingering suggestions No need for printed music No need to commute Minimal instructor involvement Inferior technique analysis Lack of human touch
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Professor R. Pierantozzi Rapport with motivating Lower cost instructor invested in students Real-time tracker to success monitor rhythm and Personalized instruction tempo Gaming features Instructors cannot monitor how much students practice or how closely student complies with lessons Instructors become frustrated with disinterested students and parents One size fits all fingering, without regard to hand size and reach Inability to tailor instructions to student needs Reduced revenue for instructors resulting from fewer in-person lessons
By: Angela Chadwick, Daphne Lin Gaming features Feedback superior to other nontraditional options Instructors can use to become more virtual; marketing tool Potentially difficult setup, calibration and repair needs Reduced revenue for instructors resulting from fewer in-person lessons
Enragers
Tolerables Differentiators
Dissatisfiers
Energizers Enragers
MGMT 806
Phase 0 1 13 202,500 15,625 78,125 0 0 1 31,250 2 62,500 0 0 3 15,000 (202,500)
Professor R. Pierantozzi
Phase 1 2 26 100,000 650,000 650,000 650,000 31,250 156,250 0 1 62,500 1 50,000 3 225,000 2 75,000 1 25,000 8 25,000 Phase 2 2 26 125,000 812,500 812,500 1,811,250 46,875 234,375 4 400,000 3 187,500 1 50,000 5 375,000 5 187,500 10 250,000 24 80,000 (998,750) Phase 3 2 26 125,000 5,000 5,000 1,202,500 812,500 390,000 4,007,500 62,500 312,500 4 400,000 16 1,000,000 2 100,000 10 750,000 25 937,500 10 250,000 63 195,000 (2,805,000) Phase 4 3 39 125,000 300,000 300,000 36,318,750 1,218,750 35,100,000 10,022,500 156,250 781,250 5 750,000 32 3,000,000 3 225,000 15 1,687,500 50 2,812,500 10 375,000 110 235,000 26,296,250
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