Thursday, August 26, 2010

Creation of common EU patent system faces setback - Translation Implications

Since May 1, 2008,  the London Agreement, meant to reduce costs relating to the translation of European patents, has been in effect. The London Agreement provides for patent claims to be available in the national language of the states where the European patent is registered, while the description — which represents the bulk of the text of a patent — can be made available in English, French, or German, the official languages of the EPO (European Patent Office).

The argument for the London Agreement was that the cost of translations reduced the incentives for companies to apply for a European patent and, many argued, the situation was a burden on the competitiveness of the European economy, compared to the situation in the United States.

However, according to news from NetworkWorld, the European Court of Justice might put a break on the stated plans of the current EU presidency to  foster a common patent system across the European Union. The court's Advocate General believes that a centralized patent is "incompatible with the treaties" that created the EU, according to a leaked document.

If the European Court of Justice moves forward with this decision, translation companies specializing in Patent Translations will see a return of business in high volumes. Companies like UK publicly-traded RWS and Denmark's Lingtech are set to benefit from this return.  I might even develop a service in this area for Milengo if this ruling materializes.

It always struck me as strange the fact that the EU was promoting a common European Patent, when respect for linguistic diversity is a core EU value. In fact, Article 21 of the ‘Charter of Fundamental Rights of the European Union’ forbids discrimination on several grounds (specifically including language), while Article 22 guarantees respect for cultural, religious and linguistic diversity.

Let's wait and see how this pans out.

Tuesday, August 24, 2010

Localization Perspectives 4 - Disintermediation

In this week's episode Renato & Kirti are joined by Bob Donaldson from text & form to discuss disintermediation. With current business models in the localization industry changing as technology advances, who will be left without a seat when the music stops?

Friday, August 20, 2010

Specialty Events: Localization Project Managers Round Table and Vendor Management Seminar

I was having a conversation with a client today who asked me about the benefits of the different types of events. She was specifically asking about the Localization Institute's 2010 Localization Project Managers Round Table to be held in Lake Tahoe next month.

My response was that different events cater to different audiences and that choosing the right one is sometimes hard. But I discussed some criteria that might be useful for you when evaluating events.
  • Specialty events are excellent for sharing experiences with peers. The topics tend to be focused and very relevant for people in a certain position in the organization. That is the case of the Project Managers Round Table promoted by the Localization Institute and the Vendor Management Seminars organized by IMTT. Contrary to larger generic events, the main value of a specialty event is education and peer-to-peer networking. They seldom have booths and few salespeople attend.
  • Geography-focused events tend to address issues that are common to people in different roles in a company, but with a local slant. Good examples are the ELIA Networking Days, the ALC Conference and Think Latin America. The programs tend to address business issues that are common to a certain region and might not appeal to a global audience.
  • Generalist events like Localization World, LISA and GALA tend to provide something for everybody, with varying degrees of success.
So, my final recommendation for this client was to look at her calendar and try to attend at least one Specialty event (she is a client-side Project Manager and is going to the Round Table), a Geography-focused event, and one Generalist event. That will provide her with education, networking, and a bunch of salespeople calling her after each event (but she promised she will stay with Milengo).

Sunday, August 15, 2010

Rosetta Stone Reports Bad Results and COO Resigns

Rosetta Stone, (RST) a provider of technology-based language-learning solutions, reported preliminary second quarter revenues that came in below expectations sending the shares down nearly 10% in after hours trading. Rosetta also announced that Eric Eichmann, chief operating officer, has resigned from the company. 

My goal here is to take a look at Rosetta Stone's business model. For a more detailed analysis of their financial results and market expectations, read the excellent coverage from TheStreet.

In a first attempt to look at the language training market I built the mind map below, looking specifically at five variables: 
  • Players in the space
  • Sales channels
  • Pricing
  • Geography
  • Buyer motivation
Click on the image to enlarge

Rosetta Stone is in a very competitive market with many forms of delivery of language training. The company was able to generate $269 million in revenue in 2009 and projects sales between $275 and $285 million for 2010. It generates revenue primarily from sales of packaged software and audio practice products, but also online software subscriptions. The company also sells language programs to corporations, government agencies and schools.

My struggle with the Rosetta Stone model is scalability, and my major concern is that the company might be overestimating buyer motivation to acquire their product. I am skeptical because of my personal experience learning to speak five languages and being an English as a Second Language teacher in the past.

There are two key elements in language learning: Human Interaction and Motivation. The former is easy to emulate with software, even though it is not as much fun. The later is harder. Think of it like getting a personal trainer at the gym or signing up for a yoga class, as opposed to having an open commitment to going to the treadmill.

When I read the financials for Rosetta Stone, testimonials, and hear their sales pitch, I am very impressed at how the get people to buy on impulse at kiosks in malls and airports, but what I don't see is any information about follow up sales. I suspect that a high percentage of their software is just shelfware, i.e., software that gets bought by a company or individual that ends up sitting on a shelf somewhere and not being used.

In its SEC filings, the company highlights the fact that their sales peak during the holiday season, which leads me to believe that people buy the product for someone else as a present, and that a big chunk of the buyers never go beyond the first lessons.

A few years ago, I went to Japan for the first time and bought a Pimsleur course to learn some Japanese during my trip. I can say Nihongoga Wakarimasem (I don't speak Japanese) and ask Eigo wakarimaska?(Do you speak English), but I never went beyond the third lesson in that package.

Regarding their stated strategy to sell more in international markets, I think it is a very good approach and I am sure that selling English training in Asia and Latin America has a lot of potential but not at the price points practiced by the company, and not without sometime of localization of the content.

If Rosetta Stone is planning to reach the numbers it has promised investors, I wouldn't be surprised if in the next few years they start looking at acquiring schools and selling butts on seats in classrooms to drive demand.

Bottomline: There is an almost  unlimited demand for foreign language learning, I just don't think that the self-paced and self-motivated model offered by Rosetta Stone is very scalable.

Friday, August 06, 2010

Almost 50% of Sales of S&P Companies Come from Outside the U.S.

For many years, I have tried to find a way to extract information about international sales from the financial reports of public companies in the United States, what Common Sense Advisory calls xenorevenue. In addition to my personal research, I have talked to data service companies to find a way to automatically extract this information from their databases, to no avail.

Today, the Investing Insights blog in Bloomberg BusinessWeek, shares my frustration by stating that "While globalization is apparent in almost all company reports, exact sales and export levels are difficult to obtain. Many companies tend to categorize sales by regions or markets, while others segregate government sales. Additionally, intra-company sales, and hence profits, are sometimes structured to take advantage of trade, tax and regulatory polices. The resulting reported data available for shareholders is therefore significantly less than the desired level for analysis."

However, their analyst was able to look at data from half of the S&P 500 companies, which gives us a good indication of the level of international activity of large American corporations and helps us build a business case for translation expenditures.

While Howard Silverblatt, the author of the posting, focuses on comparing international sales with previous years (they have declined!), I was more interested at the actual volumes of international sales, which are higher than I would have guessed. According to the report, of the reporting 250 companies, 46.6% of all sales were produced and sold outside of the United States, compared to 47.9% in 2008, 45.8% in 2007, and 43.6% in 2006.

But what is no surprise to Localization veterans, is that Information Technology continued to be the dominating sector with over 56% of its declared sales being foreign in nature. The IT sector represents 20.4% of all U.S. foreign sales.

The full report with more detailed data, including some geographic breakdown, is available in PDF format here.

I will analyze this data more thoroughly and write a follow-up post.

Monday, August 02, 2010

Need proof that localization pays off?

I am often asked how a company can justify localizing a product for a certain market. My standard answer is "Just do it!" as I believe that the best way to sell a product in a market is by providing it in the language of the local consumers. However, I understand when companies want to build a business case before they take the risk.

Today, the Brazilian newspaper "O Globo" had a story about how video-games are gaining ground in the country because they are localized into Portuguese (click here for a pretty readable Google Translation of the story). The starting point of the story is the fact that people noticed that video-games were now advertised in Portuguese on network television in prime time. The journalist also states that Xbox 360 offers games in Brazilian Portuguese, while Sony's Playstation only offers games in European Portuguese.

Julio Vieitez, director of LUG, a game distributor in Brazil, states that "When comparing the revenues of a good game in Portuguese and in English, the former is 15 times higher than the latter. Localizing is important because people want to play with their friends." Let me repeat that: The revenue of the localized version is 15 times higher than the English version! How about that for ROI?

In the interviews that I have done over the years in the localization market, there are a few things that I have learned:
  • Once a company starts localizing into a foreign language, it seldom goes back.
  • Some localization is better than no localization.
  • People prefer products in their own language, even if they know English (my Facebook interface is in Portuguese, by the way).
  • Support and after-sales in local language are key for product success.
I co-authored a study when I was at Common Sense Advisory called "Can't Read, Won't Buy" that is available for free from the Lionbridge website. Oh! They are my competitors, now :) In any case, it is a good read on the topic.