Today, Wednesday, December 11th, Rosetta Stone announced the acquisition of Tell Me More for $28 million. What does this mean?
1. Rosetta Stone would rather buy innovators than innovate themselves
TellMeMore is a company with interactive software that goes beyond Rosetta Stone's text, audio, and image association approach. By acquiring TellMeMore, Rosetta Stone is adding features such as language explanations, word lists, and cultural relevancy. This continues an acquisition spree by Rosetta Stone which includes Lexia Learning and LiveMocha, which we at Lingo Live covered back in April. Nevermind that TellMeMore's web application uses Adobe Flash as the backbone of their software (listen closely for the collective groan of 600 million iOS users). Rosetta Stone is adding another piece to their smorgasboard of language software options, which leads to our next point.
2. Language learning providers are becoming gigantic conglomerates
Rosetta Stone took out a major competitor at the price of essentially one year of their revenue. This follows similar acquisitions by huge organizations which have lead to most of the options for language learning being owned by either Berlitz, Pearson, or Rosetta Stone:
But forget the economics. What's more interesting is how this further complicates what Rosetta Stone needs to convince users: that they know the most effective way to learn a language.
TellMeMore employs an explicit method for teaching languages, where users can review grammar explanations and analyze the structure of the language if they want. This is entirely different from Rosetta Stone's learn-naturally-as-a-child approach, which is even more different from LiveMocha's communal, social-network approach. How can Rosetta Stone maintain credibility as language learning experts with so many contradictory approaches?
The answer: it doesn't matter. Rosetta Stone will likely keep TellMeMore as a standalone entity but just flood their users' email inboxes with Rosetta Stone deals, much as they have with LiveMocha users. By doing so, they can sell more product through a low cost channel (email marketing) and clear out their inventory of obsolete CD-ROMs.
However, this contradictory, multi-faceted approach to language learning, and the negative experience of users who have been usurped by Rosetta Stone, will dilute the value of their brand in the long term.
3. Rosetta Stone is focused on Institutions
Back in May, when we presented Lingo Live's institutional offering at a corporate conference in Dallas, Rosetta Stone's massive presentation space, complete with a juice bar and roaming sales reps, made our guerilla marketing efforts look paltry. I spoke to one of the executive members of Rosetta Stone's E&E (Enterprise & Education) division and the message was clear: institutions are where it's at.
Over 85% of TellMeMore's revenue is generated from corporate and higher education verticals. Through the acquisition, Rosetta Stone will be able to grow their E&E business from only 22% of their revenue to something closer to 30%, and they'll drop their cost down by combining their sales teams. They're chasing the money, as they should be since they haven't turned a profit in years, but whether or not their pricing changes as a result of this monopolization of competitors remains to be seen.
Rosetta Stone needs to be seen as the pinnacle of language education. However, the diversity of their methodologies, their lack of creativity in their discount-oriented marketing approach, and their pattern of usurping communities of happy learners will cause individuals to look elsewhere for their language learning needs.