"We are passionate about building a world in which every person is fluent in multiple languages, and today, I am thrilled to announce that we have taken the next step towards that goal." This is how LiveMocha CEO Michael Schutzler began his announcement that he will no longer be battling language learning behemoth Rosetta Stone and would instead be acquired by them.
What Michael's letter did not mention was what Rosetta Stone, "one of the most durable and well-known education brands in the world", intends to do with his company, which was arguably their largest online competitor over the past few years. Early rumblings from the tech blogosphere predict everything from shutting them down to moving Rosetta's entire online platform onto LiveMocha. RST management, and particularly their new CPO Westley Stringfellow, recognize the value of the online community that LiveMocha has built.
The discussion around the acquisition by financial analysts and language learners alike has evolved into what most discussions on the topic look like in general: what actually teaches people a foreign language? Financially-inclined or not, everyone cares about what the most effective product is.
There are 5 reasons why you should be skeptical this acquisition will save Rosetta Stone, which has been running in the red for the last few years.
#1: It's all about mobile...
Everyone knows this. Even a 4-year old on mommy's iPhone could tell you the platform is basically worthless unless I can access it quickly, anytime and anywhere that I want. LiveMocha DOES NOT HAVE a mobile app! Their users have been begging for it. Other language learning apps have nailed design, usability, and pricing and don't seem to be very complicated (Duolingo, MindSnacks, and LivingLanguage to name a few). This acquisition doesn't do much to nail mobility.
#2: Rosetta Stone and LiveMocha have entirely different users, pricing and acquisition channels...
Let's look at the marketing strategy and revenue model for each. For lack of a better analogy, this is like Stella Artois (mediocre beer, overpriced) acquiring Pabst Blue Ribbon (mediocre beer, underpriced):
LiveMocha (a.k.a. Pabst Blue Ribbon)
- Revenue/User Acquisition: LiveMocha offers a freemium model which allows users to connect with other native learners in the hopes they can upsell them on the site's premium materials. Hence the reason you may have been wowed by their claim of 12 million users (it's unclear what proportion of them registered once and never returned... most "users" we interview to fall into this category). A former founding member of LiveMocha noted to us that the freemium model gave its users an in-depth understanding of what they were going to get so they didn't need to spend as much time on communicating the unique value proposition with a pretty website. The problem, however, was simple: they gave too much away for free.
- Marketing: LiveMocha focuses a lot on referrals/word-of-mouth and email marketing since their product has relatively happy users for the price paid. Marketing spend is far more targeted than Rosetta Stone's.
Rosetta Stone (a.k.a. Stella Artois)
- Revenue/User Acquisition: Rosetta Stone doesn't allow much in the way of a demo and puts a large price stamp on their shiny yellow boxes. Lest you be scared off by the price, the sign-up process is accompanied by heartwarming photographs of cultured visitors in a foreign land along with maybe a vague snippet from outdated reviews still featured prominently as a seal of approval. Rosetta Stone does a remarkable job "selling the dream" and maximizing on the buyer's point of least resistance, a concept LiveMocha never seemed to grasp.
- Marketing: Aggressive ad spend, ~50% of their ~$250MM in annual revenue to be more precise. Whether it was an infomercial riddled with Americans butchering Italian or the bright lights of an airport kiosk, something got you to know their brand. Any hyper-targeted marketing spend has been directed at governmental contracts and institutional sales which they've done an incredible job with considering what people have to say about their product (more on that next).
Unfortunately, neither strategy is really moving the needle much: Privately-held LiveMocha sold to Rosetta Stone for about half of what they raised in capital over their 5 years of existence. Meanwhile, RST has been delivering a negative return to their shareholders over the last few years.
#3: Rosetta Stone needs credibility in the online community...
Rosetta Stone analyst Ian Bezek told us their customer base is very hard to segment, but Rosetta Stone buyers generally fall into the 30-50 age range, are predominately located in the US and Canada, and are relatively affluent. Pushing aside the massive opportunity internationally and focusing only on this domestic market for language learning, what does the future look like for Rosetta Stone?
- Users can easily be informed not only of Rosetta Stone's shortcomings but also of the countless lower cost and/or free competitors who are beating them at their own game, either through honest reviews or detailed effectiveness studies.
- Very few reviewers point to a true value in Rosetta Stone's product. In the case that you do read something crediting Rosetta Stone's approach, it is almost always followed by a lower-cost alternative that is just as good or better.
- Users will look for a red flag before buying because it is so easy to do.
Again, executing the sale at the point of least resistance is key. However, today's buyer only needs to type "rosetta stone review" in Google and watch the red flags flood their screen. What % of 20-35 year-old potential users do you think do this, or are already informed, before buying Rosetta Stone? I would be shocked if it were less than half. So if 50 out of every 100 people who are legitimate buyers do this simple research, how many of them decide to trust Rosetta Stone despite the negative press? 10? 20? Maybe Rosetta Stone is only losing 20 out of every 100 legitimate buyers?
That's still a 20% bounce rate on their conversion page! And that's after they've accepted the price point. But more importantly, as more informed buyers slide increasingly into Rosetta Stone's demographic "strike zone", how large will this number grow and what compounding impact will that have on the size of the black eye blemishing Rosetta Stone's pretty online marketing image?
#4: LiveMocha doesn't provide the missing piece that will make Rosetta Stone's product more effective...
Unfortunately, ideal solutions offered by the online community don't point to LiveMocha. When a scrutinizing buyer follows the rabbit trail of clues as to a better alternative from the online peanut gallery, it leads to a hodgepodge of suggested apps, websites, podcasts and countless other tools which focus on specific needs (grammar, vocabulary, listening and speaking comprehension...etc). Who has the time and patience to research and aggregate all these resources? If LiveMocha were the answer, it would help Rosetta Stone improve their online reputation and increase conversions.
So what ends up happening? It's likely the buyer will just take up a class at the local community college or meet with a low-cost tutor at a coffee shop. If convenience is really important and they want something online, they'll likely just drop the dream altogether rather than "wasting their time and money". I put this in quotes because we talk to these people every single day. Which leads us to the last and most important reason this acquisition was a mistake.
#5: LiveMocha doesn't meet the single biggest need identified by today's paying language learner (neither does Rosetta Stone)...
SHAMELESS PLUG WARNING! This next section outlines specific product flaws in LiveMocha and Rosetta Stone's approach to language learning with a comparison to what we're building at LingoLive. It goes into detail about the single biggest need identified by the hundreds of busy language learners we have interviewed. If you don't want to hear our view as to how we're trying to solve the challenge of how to provide personalized, convenient langauge learning in an increasingly mobile online world, you should stop reading here.
If you are interested, sign-up to our free newsletter by clicking our logo below and we will email you a link to the fifth and most important reason why Rosetta Stone's acquisition of LiveMocha is a mistake (Part II of this report). This important assertion is outlined in detail and backed up by our own research talking to hundreds of parents, college students, corporate professionals, travelers, doctors/nurses, and other language learners throughout the globe. As always, happy to keep the discussion going on our Twitter page.