Will it blend? Content management software and localization companies
Vasont, TransPerfect, and Astoria. Really??
Disclaimer: This post is complete speculation. I have no useful inside information to work with regarding the merger.
As you may have heard, TransPerfect recently acquired Vasont. (The press release uses words like “merge” and “integrate” and carefully avoids the A-word.) This is the second component CMS that TransPerfect has acq…merged with in the past few years. The first one was Astoria in 2010.
Thus, TransPerfect now has a lineup of localization services, translation management software, and two component CMSes.
Localization service providers (LSPs) are facing a generally difficult market—there’s a ton of demand for localization, but vendors are squeezed because of the following factors:
- Most customers focus on price (pennies per word) and not quality.
- Increased use of machine translation (sometimes on the client side, sometimes on the vendor side).
- Increased use of automated formatting (based on XML), which greatly reduces the revenue stream from desktop publishing.
- Use of technologies that support incremental translation and better pre-translation matching (thus reducing the total number of words to be translated by the vendor).
Given these challenges, it seems logical to extend the LSP’s revenue stream with any or all of the following:
- Localization software, such as translation management and terminology management systems
- Content creation software, such as content management systems
- Professional services, such as systems integration, content strategy consulting, and so on
Actually making this happen is challenging for the LSP because:
- Selling enterprise software is different from selling localization services.
- The LSP must become a trusted partner rather than a commodity supplier.
- To sell software or services related to content development, the LSP must be involved at the beginning of the content lifecycle. Most localization services are sold at the end of the content lifecycle.
- Most clients have separate content and localization roles, which makes it difficult for the LSP to cross the gap from the (usually late in the cycle) localization manager to the (usually early in the cycle) tech comm or marcom manager.
If the general strategy is “move upstream in the content lifecycle,” then acquisition of content-development technologies makes a whole lot of sense. What seems weird to me is the acquisition of two component CMS companies. Why would TransPerfect do this?
Disclaimer #2: Transitioning from “pure speculation” to “magical thinking.” Consider yourself warned.
Revenue? I think not.
TransPerfect has been on the Inc. 5000 list as a rapidly growing company for several years running. The company is privately held, but Inc. has their 2012 revenue as $341.3M, up from $220M in 2009. That works out to around 15% annual growth. To keep that growth rate going, TransPerfect would be looking for roughly $50M in new revenue in 2013 and $60M in 2014. It’s extremely difficult to find revenue information about Vasont (and for bonus points, the company has both a sister company and a parent company), but it looks as though revenues are somewhere in the $6M to $7M range based on a couple of moderately sketchy sources. The extreme best case scenario is that Vasont/Progressive/Magnus/Whatever contributes around $10M in new revenue.
Could it be the technology?
After a deeply nonrigorous search, I could not locate any patents for Vasont, Progressive Information Technologies, or Magnus Group. It’s possible that Vasont has developed technology in the CCMS space that is interesting but unpatented.
What about Astoria?
Will TransPerfect maintain two separate CCMSes? This seems thoroughly inefficient, but it’s not clear to me that it’s even possible to combine the two systems into a single one.
TransPerfect could possibly market the two systems differently to appeal to different customers. For example, Astoria might be the SaaS solution and Vasont the on-premises solution. Or maybe one system would be positioned as the “enterprise” system and one as the “small-to-medium business” system.
From a software product management point of view, none of these options makes a whole lot of sense. Even if TransPerfect intends to keep developing both systems separately, they face an uphill battle in convincing potential buyers of their plans. A few years back, SDL acquired two CCMS systems. They repositioned Contenta for “non-DITA” and S-1000D solutions and left Trisoft (LiveContent Architect) in the DITA space, thus separating the two systems by content model and industry vertical. The transition was difficult for some customers.
It must be about localization sales.
I’ve reached the conclusion that this acquisition is about sales. Specifically, it’s about localization sales. If TransPerfect is selling CCMSes to various companies, that provides them with a logical pipeline of prospects for translation management systems and localization services. The $10M or so that each CCMS might produce in annual revenue is simply the entry fee for access to potential new customers for bigger and better things.
In this context, buying up direct competitors and leaving them more or less “as is” makes some amount of sense.
But will it blend??
I’m not sure this is going to work. Even if TransPerfect intends to keep both systems under development, Vasont and Astoria’s competitors will certainly highlight the risk of buying a CCMS that has an in-house competitor.
Combining the two systems and creating something that provides the best of both systems—call it “Vastoria” or “Assont”—would make more sense in the long term. Perhaps they could organize an in-house death match? (“And may the odds be ever in your favor…”)
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Larry Kunz
Great analysis, Sarah. When TransPerfect acquired (oops, merged with) Astoria it seemed like they were looking to broaden their reach from translation — fast becoming a commodity — to the professional services model. That would’ve been challenging for the reasons you enumerated.
Since that acq (oops, merger) happened almost 4 years ago, it’s fair to ask how it worked out. Maybe not as well as hoped, despite the 15 percent growth rate. I think it’s interesting that the writeups at http://www.astoriasoftware.com/products/ (and linked pages) mention translation only in passing and never refer to TransPerfect specifically.
Perhaps TransPerfect wants a re-do, hoping that Vasont will fit better with their full-services offering. Perhaps they just want to neutralize a rival. In any event I don’t see them continuing to develop both products (in-house competition, as you said) or blending (which risks upsetting both sets of customers). It’ll be interesting to see what transpires.
Sarah O'Keefe
I think it’s maybe as simple as, “hey, we’re getting localization work via Astoria customers, so let’s buy another CCMS and get more localization work.” In that case, they could totally leave them as separate entities, at least in theory.
Nick Rosenthal
Are translation companies really “commodity suppliers”?
Translators are highly skilled. They have professional qualifications (beyond degree level), excellent technical writing skills, a solid understanding of the specialist fields that they work in, and a very high-level command of at least two languages (to expert level).
Perhaps the real challenge here is to demonstrate the value of what translation companies already do. That becomes more difficult if they say “yeah, that’s just the boring stuff we do. But here, look at our exciting new shiny thing!” (in this case, a CMS subsidiary).
Sarah O'Keefe
I agree that translation companies are not supplying a commodity, but in many cases, they are perceived that way by the buyers.
Karen Tkaczyk
I enjoyed your complete speculation, Sarah. Fun to read. I have no insights on the CMS issue, but reading this reminded me that I am fortunate to be a freelance translator who doesn’t work in the bulk market that you describe, the market epitomized by TransPerfect and similar. I don’t disagree with your premise about a difficult localization market, though I could only speculate on what proportion of the market is bulk, for pennies, and what proportion is more of the trusted partner, high-value consulting type. That’s certainly out there for the taking on a smaller scale.
Sarah O'Keefe
There’s a continuum, right? On one end is Google Translate; on the other end is a specialist translator with expertise in the right language pair and specific subject matter. Something like a bilingual biochemist.
Many localization companies provide very good translations within the budget limitations imposed by customers. I’m not sure it’s totally fair to call that a bulk market…after all, I don’t think (!!) they’re using Google Translate.
Scott Abel
My crystal ball has been cracked for years (as many who have read my earlier predictions should know), but I’d say that for any service provider (a firm that makes its revenue selling the hourly services of human beings, regardless of their skill level or perceived “beyond degree level” professionalism) that isn’t also getting into the technology business is no long for this world.
Newspapers and business publishers are looking for ways to incorporate (or build themselves) powerful tools (software) that automatically write stories (like Narrative Science does for sports stories from some major newspapers currently — see below).
From The New York Times:
The company’s software takes data, like that from sports statistics, company financial reports and housing starts and sales, and turns it into articles. For years, programmers have experimented with software that wrote such articles, typically for sports events, but these efforts had a formulaic, fill-in-the-blank style. They read as if a machine wrote them.
But Narrative Science is based on more than a decade of research, led by two of the company’s founders, Kris Hammond and Larry Birnbaum, co-directors of the Intelligent Information Laboratory at Northwestern University, which holds a stake in the company. And the articles produced by Narrative Science are different.
“I thought it was magic,” says Roger Lee, a general partner of Battery Ventures, which led a $6 million investment in the company earlier this year. “It’s as if a human wrote it.”
Consultants in the technical communication, marketing, UX, and other content spaces are doing this as well when they shift from selling hourly services to inventing and selling apps. The content strategists at Content Insight created (as opposed to acquired) the CAT (Content Analysis Tool) to differentiate themselves from other content strategists, but they soon discovered their tool is now a product on its own. It’s something that brings in revenue and that might someday become far more valuable than the consulting arm of the firm.
iFixit.com is another example. They were a start up without a lot of cash. They couldn’t acquire technology, so they built it. They created a CMS (Dozuki) that is now a product and is able to allow the company to bring in revenue from sales of a software product they developed for their own internal use. The company still makes the bulk of its revenue from selling parts and tools, but what if a BIG brand decides they want to buy Dozuki and add it to their portfolio?
This trend can be seen in other industries. Barnes and Noble’s Nook division had been valued at $1.7US billion, nearly double the company’s entire market capitalization, making the technology they own worth more than what the parent company (book seller) has been valued at any time since mid-2008. The Nook isn’t selling as well as others in that market, perhaps because the company (that just hired this week a new CEO) still fancied itself a book seller, instead of what it really is now—and what most companies have or are becoming—a technology provider.
And, given that we (folks like Sarah, myself, and myriad other consultants) spend our time chastising brands for maintaining outdated business processes and organizational schemes (like the evil “silos”) then it makes sense that a services company like Transperfect would acquire technology companies to add to its portfolio (“Hey, since we manage your translation, you might want us to show you how to better manage your content as well.”)
There are many other issues to consider when thinking aloud about this (and other) mergers and acquisitions (more are coming). For instance, I get calls all the time from investors looking to learn more about our industry. Inevitably they ask about translation. They see it as a huge bucket of potential revenue, but they wonder if there’s something that would be more valuable (like a machine translation system) than just snatching up a company with a lot of human translators on their roster. They are interested in companies that have processes and methods that are unique, technologies that make them a cut-above-the-competition, and other benefits that might make investing in one company more attractive than investing in another.
When I tell investors that the “Holy Grail” is helping companies optimize their content production system (the entire lifecycle) they start to see the real value; the killer app. And, then they start asking about technology. Which ones are interesting? Why? Why not?
I did get a chuckle from the end of the article where Sarah displays her creative use of the portmanteau, but, from a purely business perspective, I think we might be way too close to the issue and creating speculation that, were we in the board room of Transperfect, might be well, laughable, as we don’t really have any idea why they did what they are doing or what that is exactly.
My crystal ball says the changes that come down the pike will happen over the coming few years. Everything will be the status quo for now. And, there’s no reason for anyone using either of the CMSes now owned by Transperfect should be concerned.
Sarah O'Keefe
I hope you’re wrong about the future of service businesses. 🙂
I agree that we don’t necessarily understand the motivation behind the merger. That lack of understanding among potential customers is going to have a negative impact on sales of both CMSes.
Andrew Thomas
Solid conjecture on your part, Sarah. I was coming to similar conclusions. I’ve also noticed that TransPerfect often acquires similar technology to our (SDL) most recent acquisitions (I’m not afraid to use the A word). Perhaps it’s coincidence, but I don’t think so. I’m not trying to claim we’re market leaders or anything. That’s for others to decide, but I do think it’s important not to discount the possibility of their move as a way to keep up with the Joneses. The other unmentioned possibility is that they wanted to head off LSP competition for specific A-list customers that use the acquired technology. This is similar to your point about acquiring new customers, but also might better explain why they bought a 2nd CCMS. Anyway, thanks for the interesting thoughts.
Sarah O'Keefe
The idea of A-List Defense is interesting!
Scott Abel
I found what Andrew Thomas posted to be interesting. If you read “SDL loses a third of its value after software group issues profit warning” (SDL blames lack of investment and poor economic climate for below par performance but could become bid target) — The Guardian, June 2013 (http://www.theguardian.com/business/marketforceslive/2013/jun/18/sdl-software-group-profit-warning) you could view the Transperfect acquisition of Astoria and Vasont in a slightly different light. Perhaps it’s not so much about “keeping up with the Joneses” as “trying to replace the Joneses” should they find themselves gobbled up by a much bigger fish. Anyone remember Arbortext?
Of course, only folks at a much higher pay grade than myself (and likely most of us in this thread) actually know what’s really going on. It will be interesting to see what happens.
As one Silicon Valley powerbroker said recently about our sector (component content management) of the information world, “If any of this [CCMS as a category] really matters, you’ll see the big boys (Oracle, SAP, etc.) getting into the mix. Until then, I’m not interested.”
Damian Spaulding
Excellent article! Thank you for sharing the result of your intense research!
Okodia Translation Company
Thank you for your thorough review! We hope they will merge CMSes and get the best of the two worlds. It will be much better both for translators and translation companies
Shelby Stubbs
Wow – this is definitely comprehensive, well-thought out prediction! A lot has changed since 2014, but it’s as equally interesting as it is enlightening to take a look at what predictions the “merge” would bring for the localization industry comparatively to now. Thank you for sharing!