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Will Smartling's Purchase of VerbalizeIt Change the TMS Market?
Posted by Donald A. DePalma on May 19, 2016  in the following blogs: Market Data, Technology
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Today Smartling announced its acquisition of VerbalizeIt, a translation software developer and service provider. CEO Jack Welde told us that he bought the 12-person company for its combination of technology, talent, and customer traction. More specifically, he wants to differentiate Smartling from other translation management system (TMS) players. With this purchase, he also acquired a human translation business that blurs the difference between Smartling's technology focus and language service providers (LSPs). Welde was joined on our call by Ryan Frankel, co-founder and CEO of VerbalizeIt. We had three big questions:

  • Why did Smartling buy VerbalizeIt? It's part of the company's plan to fill in gaps in its TMS offering. With Jargon it improved its mobile app localization capability. VerbalizeIt technology and expertise will add more connectors and multimedia capabilities for subtitling, audio transcription, and video. This functionality will let Smartling process multimedia content in its TMS alongside traditional HTML, Word, and InDesign files. 

  • Does it make Smartling an LSP? VerbalizeIt offers technology and human-powered translation services to hundreds of companies including TripAdvisor, Workday, and VISA. Thus Smartling also gets a retail translation on-demand portal that pushes it further into the LSP business where it provides the translators as well as the technology. However, Welde carefully distinguished between translating one-off projects for occasional buyers versus ongoing software-driven work for regular clients. As with Smartling's own Express site, VerbalizeIt uses its Amazon-like portal for single projects rather than refusing the work. Smartling does the same, hoping to entice these one-time purchasers back with features like translation memory and its Global Delivery Network. Many LSPs won't make that fine a distinction, so we expect to see more competition between Smartling and potential or former partners. 

  • Why did VerbalizeIt sell? Welde and Frankel spoke about the synergy of joining the two companies' technology and teams. But CSA Research sees a more basic reason – the company will soon hit a revenue ceiling. Our research shows that retail translation sites – such as VerbalizeIt's original business model – top out between five and 10 million dollars of revenue due to an inescapable reality: It's easy to aggregate a 24x7x365 supply of translation services, but extraordinarily difficult to pull together enough traffic to match that supply. The next step is to target corporate buyers as VerbalizeIt did, but that business model requires expensive marketing and sales expertise. The best of the retail sites build out above-average technology. It's what VerbalizeIt did – and what caught Smartling's eye.
What does the deal mean for Smartling and the market?

  • Multimedia raises the TMS stakes. These content type additions will gain Smartling access to accounts that demand powerful customer experiences in multiple languages. As video becomes an expected component of websites and apps, other TMS suppliers will have to up their game with similar multimedia functions. Some retail portals like Lionbridge OnDemand offer a broad array of video filetypes, but it's not a common feature among traditional TMSes like SDL WorldServer and RR Donnelley's MultiTrans. 

  • Retail translation gains a deep-pocketed supporter. While CSA Research sees great potential for online transactional translation sites, no one has made the concept work.  Smartling's reasoned use of one-off projects as a marketing tool to introduce prospects to its subscription-based offerings could pull in more continuing business. But it faces the same demand-generation obstacle that limits it effectiveness in moving the revenue needle. Smartling may find itself competing in more accounts as a tech-enabled LSP. 

  • Acquirers declare open season on smaller companies. We have seen lots of start-ups in the translation sector since 2008.  Many remain small, others have decamped. Given Smartling's acquisition of this Shark Tank alumnus, we wondered whether it's a buyer's or a seller's market. Welde assured us he dug deeply to pay for VerbalizeIt. But price aside, the reality is that while the last decade has seen much innovation in the language technology space, most products have not been developed by companies with sustainable business models. Many lack the cash flow, business experience, engineering reliability, or marketing and sales chops to take the business to the next level. Thus, deals like this one ensure that good technology will benefit from integration with a bigger product, marketing team, and sales force. 


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Keywords: Exit strategies, Mergers and acquisitions, Multimedia (audio, video, e-learning) loca, Translation, Translation management systems

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