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Is intelligent instrument a blue-ocean market? Tan 8 revealed that the investment was not merely a simple financial investment but a strategic investment.

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On October 15th, Qule Technology Co. Ltd, the high-tech and service provider for music fans, told CMBN that it had finished its A round financing from the world’s largest piano manufacturer — The Pearl River Piano Group Ltd.

According to the announcement by Pearl River Piano on October 14th, it declared that Zhuhai Pearl River No.1 Culture Education Investment Company, which is the culture education fund under Pearl River Piano, signed a capital increase agreement with Qule Technology. Pearl River No.1 Culture purchased 516,500 Yuan registered capital from Qule Technology with 20 million Yuan cash, which equaled to 18% of its equity. It means that the valuation of Qule Technology has reached to more than 100 million Yuan.

After the announcement, the share price of Pearl River Piano closed at 5.27% rise that day. Tan 8 revealed that the investment was not merely a simple financial investment but a strategic investment. After the A round, the capital would be invested into the development and production of intelligent instruments and technicians expansion. The emphasis of both funds also meant that the next
focus of Tan 8 would be “intelligent musical instruments” and “Tan 8 APP technical upgrade”.

Information shows that the trade is done through two deals. The precondition was that the investor should meet all conditions of the capital increase agreement (except for the exemption of all or part of the conditions of the investor) under the validation of the first phase of investment obligations. In the initial phase, the investor should invest 10 million Yuan on the target company. The registered capital and paid-up capital of the target company would be increased by 261,440 Yuan. It means that both the registered capital and paid-up capital of the target company would be increased from 2,352,940 to 2,614,380 Yuan. The higher part of the added part of the registered capital of the target company (9,738,560 Yuan) counted as capital reserve of it.

The initial team members of Qule Tecnology are from Microsoft, Huawei, NetEase, GameLoft and
other high-tech companies, whose goal was to create the world’s largest intelligent brand of musical instruments and music learning platform. Its businesses include GEEK intelligent instruments, Tan 8 online education and music hand-tour.

The company is preparing for the B round financing. Wang Zhengsheng, the founder and CEO of Qule Tecnology, told us that, “We’ll consider expansion after we finish the work at hand. Now, there’re lots of unrealized ideas. We first have to lay the foundation to produce an excellent app as well as smart instruments.”

Tan 8 is an online education cloud platform with intelligent music scores, musical instruments learning and playing. It was called77music.com in the past. Now, except for onlineeducation cloud platforms, Tan 8 sells two kind of smart instruments: one is GEEK intelligent piano, and the other is GEEK intelligent acoustic guitar, at 3888 Yuan and 1599 Yuan respectively on Jiangdong.com.

Currently, the main revenues come from Tan 8 are from paid customers and intelligent musical instrument sales.

Wang said, “Traditional musical instrument manufacturer is still stuck in traditional thinking mode. Pearl River Piano is a listed company. It seeks the transformation in the Internet age. We’ll do Internet + Seeing Tan 8’s mode, and they felt quite good and found us for the investment. Pearl River Piano provides resources for supports. For example, Tan 8’s GEEK intelligent piano was manufactured in factories under Pearl River Piano, which guaranteed the quality of intelligent piano production. In terms of sales channels, Pearl River Piano also provides us with resources of store.”

One report from China Merchants Securities wrote: the pace of the whole piano industry had slowed
down. The need for company transformation was in urgent. Judging from the data, piano ownership varied greatly. Except for income gaps, the uneven geographical distribution of teachers was also an important reason. Through music education or smart piano, piano companies changed from cooperation with dealers from offline to online education, which broke the geographical restrictions and opened new chapter for growth. It also explained why Pearl River Piano invested on Qule Techonology. The whole piano industry urgently needed restructuration.

The announcement of Pearl River Piano also revealed that domestic mobile music games and smart
piano has gradually entered the competitive phase. The gap among enterprises will continue to widen. In the future, Qule Techonology may face fierce market competition, which might endanger its development.

Entrepreneurial origins: transform music scores

Wang loves all kinds of instruments since he was a child. After he got his master’s degree from Beihang University, he worked for big companies such as Microsoft, Huawei, Gameloft. Finally, he leaved and started his own business. He participated in the 3D VR brand Vistandard. And in 2011, he made digital scores, which was popular with many musical instrument learners.

At the beginning of the business in 2011, Wang found that there was few industries for startups to corporate with. Though it seemed that music industries had been Internet-enabled, an important part of the process of learning instruments —- scores —- was still in a very traditional writing mode. It was very inconvenient. Wang was learning piano by himself at that time. But it was very difficult to find useful digital scores. As for the large number of fragmented teaching videos on platforms, most were in low quality and unsystematic, which could not meet the needs of piano learners.

Wang also noticed that, in the music industry, instrument manufacture had potential. For example, Hailun Pianos and Pearl River Piano were both listed companies. Music education was also promising. But those two areas were relatively traditional and hardly connected to the Internet.

According to the 2014 China Music Industry Development Report, the valuation of Chinese music education industry was 57.7 billion Yuan in 2013. And the annual revenue of instrument business was 28.093 billion Yuan, rising by 6.84%.

Qule Techonology has considered the Internet transformation of instrument and music education at
the very beginning. Wang believed that it would be a good choice!

In March 2012,77music.com andPianoEncyclopedia were launched. They attracted millions of fans with larger number of scores, high quality and timely updates. Now it has over 40,000 piano scores and 60,000 guitar scores, which equal to over 5,000 books. It’s even called the library of digital scores.

In 2013, Qule acquired joint investment from a well-known investor called Zeng Liqing (the former Tencent COO). Before the deal, Wang held 49% shares of the company. He remains the largest shareholder after the capital increase, and ownership is about 40.25%. Data show that at present, the software downloads of Qule is over 20 million, with over 8 million registered paid users, and more than 1.5 million APP users.

“What’s the difference between your mode and the Israeli online music education platform called Tonara?” CMBN asked Wang.

In April, Tonara finished its $5 million financing, led by Baidu and Carmel Ventures. It is also the first interactive score app on the iPad, providing piano, violin, cello and flute music.

Wang replied that they were quite similar in terms of interactive music. But there were two differences. First, the revenue modes were different. Tonara could sell single score to customers. But in China, the consumption habit meant that it was impossible for customers to pay for every score. Therefore, Tan 8 begun with monthly payments. It earns profits after launching for four months. Secondly, in terms of community building, Tan 8 chose instrument social community.

What’s the difference between music social networking and instrument social networking? Is it necessary for Tan 8 to do social networking? Jiang Xingliang, COO of Qule Tachnology, gave us the answer. He believed that music was not a necessity in many circumstances. But when it came to instrument, it must be necessities.

Jiang said, “Listening to music and loving playing an instrument are two different things. You love
listening to music, and you listen to it when cooking. It’s the background music. But by the time you have learnt a musical instrument, you have strongdemands. You want to share what you have learnt and communicate with others. It’s the common feature of music learners.”

Dialog with Wang Zhengsheng: intelligent instrument is a blue-ocean market

CMBN: What’s the current situation of Chinese intelligent instrument industry?

Wang: Now, Chinese intelligent instrument is still in its initial stage. There are may be only one or two companies within the industry. It’s not like mobile phone market where lots of money is spent. Thus, intelligent instrument market is still a blue-ocean market. You don’t need to worry about others. You just have to do what you should do.

However, there is a barrier when entering into intelligent instrument market. It requires an instrument factory for collaboration. There are no more than five piano companies in China. Also, the number of guitar factories is less than ten. It’s a small industry. If there is another company who wants to enter the industry, it will find that there is no agent instrument factory. The reason is that agent factories all have signed exclusive agreements.

It’s quite different from electronic devices such as smart phone which can be manufactured by IAC, Foxconn, and so on. Assembly line can’t be used in instrument factories which results in high labor costs. Machines could not do most of the work, which requires skilled workers. The skill of workers also determines the quality of the instrument.

CMBN: You have mentioned redefining instrument before. Does it mean the transformation towards intelligent instrument?

Wang: Traditional instrument is passive, which demands player to interact with it. However, it couldn’t bring more interactions. Instruments in the future will enable you to play with all your friends who love music. This is an inevitable trend.

Another function is education. It can meet needs of all levels. In the future, it will target at all kinds of learner, such as senior citizens, middle-aged, and children. No matter you have learnt it before or not, you could find what you need on our platform. Now most are new learners. In the past, people learn to play instrument with the aim to be experts. I don’t think so. You could just have a try.

CMBN: Your business is scores. Why do you start social networking?

Wang: When we make scores, we find there are many other things to do. Scores only solve part of demands, but there are also other needs. First, users want to buy instruments, but there’s no website that offers good sales information and no authority review.

Secondly, learners need teachers. If children want to learn instrument, parents or school teachers would introduce some professional teachers. But you don’t know whether the teacher is really good or not.

Thirdly, in the learning process, there are only one or two classes in a week. You have to practice a lot. But you can’t see the teacher. Youcannot get real-time advice in the course of practice.

Jiang Xingliang: To make learning music easy in the world

I remember Alibaba once said that “To make doing business easy in the world.” Our starting point of developing intelligent instrument is for supporting education. Why? When learning to play an instrument, many people cannot remember scores or scales clearly. And they can’t learn in the right way without teachers. Therefore, we add all these functions into intelligent instruments to help learners through technology.

You switch on, and connect to Tan 8 app and Bluetooth, then you can use it. It not only guides you
to play the instrument, but also have all that you want on the app and instrument. As a beginner, you just press the button and there’s the sound. However you play it, it will be right. As well as on our smart pianos, app can slow down the pace. When the melody comes out, you can follow and play after it, which lower the learning cost.

Now, we are working on the core technology of intelligent instruments, including intelligent
piano and intelligent guitar. Then, suppliers will produce them. Core technology is some of the algorithm. Only those who understand music, the Internet, and APP can do this, otherwise it’s troublesome. The reason is that you have to know the playing habit of users, such as whether you light is real-time or not and so on. You have to know music basically from design to sales.

Sound is still the essential of instruments. Thus, we have higher requirements compared with other similar products. We are very lucky to sign partnership with Pearl River, because our intelligent pianos produced by them. We have quality guarantee compared with other similar products. We’re professional.

In fact, many people have asked us how to accumulate users. Though we have competitors, we understand users better. We treat them as our lovers. We would answer the user’s questions at 11 or 12 o’clock. This is user-oriented, not customer, but user. We should know them by hearts.

Currently, we have a huge user-base of about 8 million website and app users. We will slowly
guide the flow towards Tan 8 app. But how to achieve it? We have to consider from users’ perspective: what do they really need? Where is the pain point? The number of pain points determines the number of users.

WeChat is based on social acquaintances, and Meipai is based on stranger social networking. However, these are not within our circle. We could enable the 8 million users to communicate better within the circle. Therefore, we design that all piano and guitar learners can share in the app with others, including what they have learnt or good classes through video, photo, and words.

Except for social networking, there is also music education. We have a section called Class,
which cooperate with good resources to share some useful videos. This is the first step. In the next part, we would build something like QQ live or YY Class. Of course, it should be free. We want to turn some paid sources into free. For example, if someone says that his learning resources are 60 Yuan on Taobao, he could authorize to us and put it on the platform for share. People can play his video and he can spread his ideas. There are lots of similar people. We want to attract them to the platform.

At first, we started with 77music.com. Though scores are not free now, we would encourage users to upload videos and reward them with gold coins. When users reach to certain amount of gold coins, he can exchange them with VIP for scores vouchers.

In terms of music score copyright, it’s hard to define. Why? If the score is published by others and you use it, it’s your fault. But we’re different. We produce scores by ourselves, which are not available in the market. We produce the score from what we hear. If there is a song with no score in a show program and users love it, we’ll make it. Even there is some band music which is not suitable to be
played by piano, we would adapt it to piano and guitar songs. We’ve put lots of efforts on it.

You’ll find many scores from Tan 8 on the Internet. Piracy is still a serious problem. They even
replace the writer’s name with their own Taobao shop logos. It’s too common. We have no way and nowhere to activist. We become the biggest victim and we even hire people against piracy. Now, there are six to seven people in our company working for this and we also outsource to other music learners.

There’s no one that is more eager to urge the government to protect the copyright of scores than me. I believe the government will set rules for it in the future.

Writer’s review: mobile Internet-enabled music education is booming

Referring to venture projects of music education apps, CMBN has reported classical O2O education
platform called Wegenart. We also reported the news that a piano education O2O brand named “Tan 8 Piano Practice” acquired hundreds of dollars in A round financing from Sequoia Capital in March, 2015. The pain point for Wegenart and Tan 8 to solve the problem of online teachers, which would meet the needs of daily learning. O2O is a more serious business mode. We also connected to a Shanghai venture project called Practice With You, which received $ 600,000 from BlueRun Ventures. The band is targeted at online musical instrument stores and teenagers aged between 5 and 15.

Additionally, BlueRun Ventures also led the investment of another O2O music education company called Xingkong piano company in 2015 with $20 million in C round. Moreover, the singer Hu Yanbin launched the app NewBan, which was the first mobile internet music learning platform (free) by an artist. Another music education startup brand —- XueYinYue —- focuses on O2O music education of online collaboration and offline education environment at spare time in places like cafeteria and tea shops. This year, it also had two rounds of angel financing with more than one
hundred million Yuan, including one from Yu Quan. Besides, the new round is in the process.

Hu once estimated that the whole online education market was about 55 billion Yuan. Music accounted for 10% of it, which meant that it could reach to a considerable number of 5.5 billion Yuan. In the present phase, different brands have different advantages in terms of internet music education. As for competition, due to the expansion of companies, there will be fiercer competition
when gaining users.

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