SDL to LSPs: "Kill the Other Guy!"

Article Details

Global Watchtower

Common Sense Advisory Blogs

Posted by Benjamin B. Sargent on February 26, 2008 in the following blogs: Translation and Localization, Market Data
Pages \| \|

Back in grade school, we played a game we called "Kill the Guy with the Ball," in which one courageous boy -- this was not a co-ed game, at least in the 60's -- would take the ball and run with it, in any direction, and everybody else would chase him, screaming bloody murder. Before the inevitable tackle, he would wing the ball, in any direction, and whoever caught it would then run, in any direction, and so it would continue. The fastest guy, who once managed to put some distance between himself and the screaming horde, turned back and yelled to us, hands outstretched, "I know you all love me!" At which point he was pulverized into lawn fertilizer.

In a call this week, SDL and Idiom CEO's took tough questions from GALA members about the acquisition. The grilling was harsh and at one point Mark Lancaster heaved the ball over to Lionbridge. He said: "I see 2 kinds of customers. The first wants BPO and will use a single vendor. The second wants multiple service providers." There are two implications here that warrant mention. The first is that both Idiom and SDL were and are fundamentally aligned on the multi-vendor side, competing with Lionbridge and every other vendor with a captive technology solution on the other. That's why it made sense to combine the two businesses in order to turn their collective energies against a common enemy.

The second implication is that SDL is fundamentally aligned with all LSPs who don't develop their own captive systems. The logic is that customers who want multiple service providers will use SDL technology, at which point, all LSPs can compete to service those words. Customers who want to use a single vendor will use Lionbridge (or Sajan or thebigword or Translations.com or Transware). We are not sure SDL succeeded in putting the ball into Lionbridge hands -- yet.

For one thing, Lionbridge is not exactly running away with the ball. The 800-pound gorilla of the industry announced its fourth quarter and full year earnings today, with revenue in 2007 growing 8% over 2006. Its gross margin "would have been" 34% if not for currency challenges. SDL's numbers look like flying next to that. Still, Lionbridge is generating enough cash to pay down debt, repurchase stock, and increase its R&D spending, so that's something. On the technology side, Lionbridge claims 300 clients using its Freeway platform, versus 60 for Idiom WorldServer. But then, SDL can claim 150,000 translators using its TM tools, versus 14,000 for Lionbridge. Stepping back and looking at "captive" TMS as a whole, we think SDL has a point worth noting. Excluding L-3, Language Line, and SDI Media from the list of top 20 translation companies, roughly half the LSP revenue at the high end of the market goes to companies with internally developed and managed translation systems (more than half if you include SDL service revenue in this category). So if anyone cares to notice, with SDL's acquisition of Idiom, the battle lines are now more clearly drawn between captive and multi-vendor translation systems.

Fully 75% of LSPs in our recent survey were not happy about the concentration of multi-vendor technologies in the hands of a single company that also competes for the "words" business. But given the strong position of the captive technology players in the market, we think SDL needs to state its case more loudly, more often, flinging the ball at Lionbridge or Translations.com and yelling "kill the guy with the ball!"

Categories