Who needs translators when you have the Rosetta Stone? Founded in 1991, Rosetta Stone provides language-learning software via CD-ROM and online subscriptions. The company's Rosetta Stone Language Library combines images, text, and audio, without the traditional translation or grammar explanations, to mimic the way children learn their native languages. With consumer and institutional customers in more than 150 countries Rosetta Stone offers software for about 30 languages. Its products are available through direct sales channels and at selected retailers such as Amazon.com, Barnes & Noble, and Staples.
Most of the company's sales come through direct channels such as call centers and websites (direct-to-consumer, about two-thirds of sales) and institutional sales teams (nearly one-quarter of sales). Rosetta Stone's institutional clients are mainly from four markets: education (Rutgers University), government and military agencies (FBI, US Army), not-for-profit organizations (Seattle Goodwill) and corporations (GM, Marriott International).
Although it still holds a leading position in its industry, Rosetta Stone has seen its US consumer bookings decline since 2009 due to the troubled global economy, increased competition, and an evolving media and product delivery environment. To address its challenges, the company is looking not only at experimenting with pricing and marketing, but also delivering more of its offerings online. In 2013 it acquired Seattle-based Livemocha, which operates online language-learning communities, for about $8.5 million. Livemocha's cloud-based learning platform will aid Rosetta Stone's expansion in that area.
Rosetta Stone's institutional customers grew more than 10% in 2011 but still represent less than a quarter of sales, and international customers, too, account for about 20% of sales, so growing this client set is part of its strategy. One of the benefits of the company's language-learning approach is that products don't require translation into the user's native language, potentially increasing the efficiency of global expansion. Since 2005 Rosetta Stone has opened offices in Brazil, Germany, Japan, South Korea, and the UK, and is looking to enter new markets in Asia, Europe, and Latin America.
Another key element in its growth plans is diversifying its portfolio and technologies. In 2010, for example, it introduced versions that included the chance to practice with instructors and other students. In 2011 it released a remediation offering specifically for the Asia market for customers who are trying to improve their fluency, grammar, and vocabulary in English. Rosetta Stone will also continue expanding its offerings to mobile devices.
Rosetta Stone's direct-to-consumer and institutional business grew by double digits in 2011, making up for declines from its kiosk, retail, and homeschool customers, to increase revenues about 4% to nearly $270 million. Sales and marketing spending both at home and abroad, however, grew nearly one-quarter over the previous year, driving the bottom line into the red by $20 million. As the company moves more of its products online, subscriptions continue to replace CD-ROM sales, and the transition incurs costs of its own.
Rosetta Stone began in 1992 as Fairfield Language Technologies by Allen Stolzfus and his brother-in-law John Fairfield, with capital provided when Stolzfus' mother mortgaged her house. Family members ran the whole show until Stolzfus died in 2002. That year Fairfield Language Technologies was sold to investment firms ABS Capital Partners and Norwest Equity Partners; the company officially took on the name of its Rosetta Stone software shortly after.
Directors Laura Witt and Phillip Clough, through ABS Capital Partners IV Trust, together own nearly one-quarter of the company. Director John Lindahl owns another 16% through Norwest Equity Partners.