Above the Crowd

A Real Time Free Vs Fee Example: Rosetta Stone vs. LiveMocha

August 20, 2009:

rosettaAs I was driving to work this morning listening to NPR, it became clear to me that this “free vs fee” discussion has some legs (to listen to the NPR piece click here).

Last week, Rosetta Stone was back in the news with regards to an earnings miss as well as pulled secondary offering. Over a year ago, I had the chance to meet with a very interesting Seattle based company called LiveMocha (we are not an investor in LiveMocha). As you might have guessed, LiveMocha offers language learning on the Internet, in a manner that is similar to Rosetta Stone, for free.

If you read our previous thoughts on the free business model, we made one key point. Free is not necessarily a game plan, or a guaranteed model for success, but rather a market reality. Someone may be able to do what you do for free.  Does it guarantee they will be wildly successful? No, but it still may be a massive threat.  Microeconomics is not a zero-sum game. It’s perfectly reasonable for all the players in a market to not generate excessive (or any) profits.

Let me tell you a bit more about LiveMocha. The company runs a web site where you can learn any number of languages. What’s really cool is that it is also an online community, so they connect you with people that are learning the same language as you, as well as people that are proficient in it, who go so far as to listen to your audio samples and offer 1-1 feedback. Based on these rich community features, LiveMocha argues that their “Free” product is even better than Rosetta Stone.

One other key component of LiveMocha’s business is that the community provides all of it’s contribution for “free,” including translating the courses into more and more languages (this is really, really cool).  That represents immense leverage, and from my perspective is problematic for Rosetta Stone.  LiveMocha’s cost of building its content is “close enough” to zero, and as such, I suspect they will be able to have a free offering for a long, long time.

Does this mean that LiveMocha will be successful?  Not at all.  First, they have to be “known.”  Today, I suspect their awareness is a mere fraction of that of Rosetta Stone.  More critically, they are still experimenting and learning on the monetization front.  I believe the current plan is a combination of “freemium” and advertising, but there is still a long way to go from here. It also isn’t directly clear who wants to target this group from an advertiser stand point.

I can certainly see how Rosetta Stone’s management would disregard LiveMocha as a small company that no one knows.*  Moreover, I suspect that they would argue that LiveMocha has no material impact on the current quarter (i.e. it didn’t cause the recent miss).  Still, I would not be too quick to dismiss the rising threat of the free offering, especially in this type of economy.  I was able to find this interesting post from the Orange Beach Library in Orange Beach, Alabama, titled “Goodbye Rosetta, Hello LiveMocha“.  Worth a quick read.

As I said before, “free” is more of a threat than a strategy.  If someone can do what you do for free, you are forced to deal with it.

* It is important to note that the very beginning of the risk section of Rosetta’s S-1 states, “A decline in demand for our language learning solutions or language learning in general could impair our ability to generate revenue and compromise our profitability, as could the growth of free language learning software and online services and intense competition in our industry.”

25 Comments

  1. Katherine Warman Kern August 20, 2009

    Perhaps LiveMocha is taking advantage of Rosetta Stone’s slow move to the internet and access from anywhere, leaving the bar very low. I found that very frustrating. After all, I get a lot more time to do the exercises on the road than I do at home. They would keep me as a paying customer if I could get their high quality programs on the road.

    @comradity

    Reply
    • Jim September 23, 2010

      Hi, I am learning Spanish and I have tried http://www.hello-hello.com, Rosette Stone, Livemocha and http://www.busuu.com‘s courses. Each one of them has their own advantage from CD to many language courses, but I personally liked the course content of http://www.Hello-hello.com, developed with ACTFL (The American Council on the Teaching of Foreign Languages). I think they worth more than trying since they are also Free.

  2. Bob Monsour August 20, 2009

    As someone who is interested in learning Spanish (finally), I went and had Rosetta Stone’s free trial lesson CD sent to me. First, it didn’t fully operate on a nearly new Mac. They are spending a lot of television to create awareness and while it prompted me to try it after seeing the commercials during every single televised tennis event, I was underwhelmed. That, plus the pricing. The lowest entry point for just level 1 of their Spanish course is $299.

    After reading your post, I went over to Livemocha, got through the requests to pay and started the free Spanish course. Within two hours, I had two friend requests and since getting through lesson 1 and most of lesson 2, I have had 5 people comment on my written and spoken submissions that are part of the exercises.

    There is also a facebook integration feature where your progress can show on your FB page (I did not turn that on).

    If they can efficiently market, and find the right level of subscription pricing, this could do serious damage to Rosetta Stone, in my opinion.

    Reply
  3. KirstenWinkler August 21, 2009

    The big advantage of Livemocha is its community, the experience to learn with other people from around the globe. Livemocha has 3 million members and it s growing rapidly by a rate of about 1 million users every two months now.

    With the community comes the ability of crowdsourcing the content. That’s why most of the lessons are already available in 26 different languages.

    Livemocha also made a partnership deal with Pearson to offer a new English online course.

    Livemocha is more taking advantage of the social web than of the slow move of Rosetta Stone. Some public lbraries in the US are now even offering Livemocha instead of RS.

    And Livemocha are not the only ones. They are the biggest but there are more and more communities like this: Babbel.com, Busuu.com or Palabea.net to mention a few.

    Reply
  4. Sarah Gontijo August 21, 2009

    Well, Rosetta Stone: get ready for competition! Another website that offers free language learning with social networking is coming up soon: hello-hello.com.

    I am part of the team and therefore I would like to ask your permission to post some info about the site, which we believe will have a better methodology for the lessons because they were developed in collaboration with ACTFL (The American Council on the Teaching of Foreign Languages)

    Hello-Hello.com will be a FREE language learning website combined with social networking where members will be able to:

    – LEARN: do the lessons online anytime, anywhere

    – TEACH: get help from native speakers and help other members to learn their native language

    – COMMUNICATE: chat with people around the world to practice the language and make friends

    The site will be ready in a few days and people that pre-sign up before the launch will become VIP members so go ahead to hello-hello.com

    Reply
  5. Shirish Nadkarni August 23, 2009

    Bill,
    Thanks for providing your insights on “free” business models and the potential challenge that Livemocha poses to RosettaStone’s business model. I agree with your fundamental thesis that a free business model can be powerful disruptive force to fee based business models as we have seen time and again on the internet especially with the media industry. I also agree with your thesis that just blindly pursuing a free based business model is no guarantee of success. However, I would argue that there are a number of factors that make pursuing a free based strategy even more compelling and feasible than in the Web 1.0 days.

    – Low cost of creating software platforms. With significant open source software available, it is indeed possible for a small startup like Livemocha with less than 10 software engineers to compete with the mighty RosettaStone
    – Low cost of delivering content and services on a global basis. Hardware, software, hosting, bandwidth costs are incredibly low and getting lower everyday
    – Of course, low or negligible cost of customer acquisition given the power of free to attract users. With over 3.5 million registered users, we have clearly proven that free is a powerful customer acquisition strategy.
    – Low cost of creating content given that you can now tap the expertise of eager contributors. In fact, if architected correctly, one can build a content base that is so deep that no single company with its own editorial staff can afford to match. As you point out, Livemocha has successfully tapped the community to build a large footprint of languages (now at 25 and soon over 60). Our site, currently localized in 7 languages, will soon be available in many more languages — again through community based translation.

    All of this means that we can keep our burn rate low for a very long time and, therefore, the bar to achieving profitability becomes a lot easier. RosettaStone has been very successful in building a powerful brand with their ubiquitous kiosks and TV advertising (and kudos to them for the amazing marketing machine they have created). However, how long is it before people in the US discover Livemocha in droves via their friends on Facebook or through their local school or library. Aside from our own claims, if you search the internet you will find significant evidence that people find Livemocha to be a more effective and engaging offering. And, while RosettaStone is attempting to move to the web with the recently launched TOTALe offering, pressure from Wall Street is undoubtedly forcing them to price the offering at levels ($999 per year) that don’t cannibalize their CD-ROM business.

    We believe that the language learning market provides us with a number of significant monetization opportunities that will lead to successful business model. There are a large number of casual language learners in the market, and a critical mass of serious language learners who are willing to pay for specialized learning content and instruction (as they are currently doing today in brick-and-mortar institutions). Livemocha is partnering with experienced and credible publishers like Pearson to deliver new premium courses that users are paying for — and telling us that these courses offer them unique content and native speaker interaction that they can’t get in their local market.

    I have no doubt that RosettaStone and other major language players are watching us closely. However, so far, there is no evidence that they are prepared to deal with the growing challenge that the Livemocha represents to their business models. Thankfully, Wall Street is cooperating with us to keep the pressure on the incumbents to stick to their existing business models.

    Reply
  6. Jason West August 25, 2009

    Fascinating. I’m taking part in an online conference on Thurs (ETCon) with Livemocha, Italki.com, Busuu etc. about community and crowdsourcing in online education. I’ve not seen anyone mention the mid-point. They either go ‘free’ or ‘premium’ and crowdsourced or authored. I think it is possible to have something in the middle that is both crowdsourced and professionally edited and that the crowdsourcing element can drastically reduce development costs, but also make the product more effective and tuned into the needs of the end user.

    Reply
  7. Jason West August 25, 2009

    Oh, I forgot, Livemocha are about to launch a ‘online English conversation practice’ course built in collaboration with Pearson ELT…premium (i.e.paid for) content! So does free mean crowdsourced and paid mean conventionally authored?

    Reply
  8. Andreas Ramos August 25, 2009

    Certainly, “free” is a threat to fee-based companies (such as Company A). Free-based Company B can get market share but at some point, it has to make money. And if Company C comes along and offers that service for free, well, Company B dies.

    Free is not a BUSINESS model. It is a market share tool, but not a business (make money) model.

    Reply
    • bgurley August 25, 2009

      I don’t agree with this. Plenty of Fish isn’t going anywhere, yet it compromises the fee-based players in the market.

    • thrill September 8, 2009

      Capture enough of a market and someone will buy you …. or you can expand into other markets from that base … and then someone will buy you.

      Step 3: Profit is now satisfied.

  9. tonya65 November 1, 2009

    This is very interesting. I wonder if this had anything to do with Rosetta Stone removing their product from our local library.

    Reply
  10. Ian June 26, 2010

    Livemocha isn’t free, at least not after the first couple of units.

    The very basic section for learning new vocabulary words is free, but you have to pay to get the juicy content.

    I recently succumbed and paid them though, and am finding it quite worth in terms of value vs. Rosetta Stone and in affordability vs. Rosetta Stone.

    Reply
  11. Dave October 17, 2010

    I think that Rosetta Stone has a better methodology compared with LiveMocha! On the other hand with Rosetta you don’t need to be online and if you have the companion disks you can listen and practice any language while you are driving or even jogging!

    Reply
  12. cbcbass October 19, 2011

    Livemocha is NOT free!!

    Reply
    • bgurley October 21, 2011

      It was when I wrote this blog post. I would also mention that RST has gone down since IPO.

    • Elsie January 20, 2012

      Livemocha is free! I use it and haven’t payed a thing… Some things on it you have to pay for, but the basics and more are free.

  13. Byron November 16, 2011

    I found rosetta stone free online. No credit card or virus or adware. I got all the languages free.
    Go here:
    http://www.filesonic.com/file/3843131004/Rosetta_Stone_v4.0_All_Languages.rar

    Reply
  14. Jason West November 17, 2011

    Great to see this thread still going, and to read some of the contributions after my last post. This is a very interesting area. An update from our side…we have been running some case studies with randomly selected English learners. We found them in a forum on http://www.EnglishClub.com and just offered to help the first two people if they allowed us to record and publish everything. We used just our content in PDF and MP3 with Facebook and Skype. The Chinese learner (Jane, 27) had studied English formally for 16 years and still spoke like a beginner when we met her online. Here are the results (just six lessons later) in audio ‘before and after’ clips (all of the data from every session with Jane and Waldek is published for free on our podcast):

    http://englishoutthere.com/listen

    Reply
  15. Marco January 12, 2012

    I’ve tried LiveMocha and am wondering if the audio quality is low because it is crowd-sourced.
    Does anyone have any data on that?

    Reply
  16. Brian March 21, 2012

    I wish live mocha had been around when I was learning Spanish. No telling how many languages I could have learned for free/cheap and at my convenience. I used to listen to cassette tapes, take classes, read stuff, etc. I was so excited to find mylanguageexchange.com and a site for phonetics help with short audio/video clips. Now someone can get 10 times that deal from live mocha. No money? No problem–just go free. I love the freemium concept and what it has done for the world since the internet became prevalent. You can get more for free today than you could for big bucks 20 years ago.

    Reply
    • Brian March 21, 2012

      fyi I did master Spanish but it sure would have been a lot faster and cheaper if I had livemocha. Again I say, “No telling how many languages I could have mastered if LM had been around 20 years ago.” Those who offer good, solid freemiums (that actually do something good) can really feel good about what they do for a living. It does way more than just make the founders rich. It gives a free gift to masses who would not or could not pay. Think of the droves of people in developing countries that are getting their very first home connection as I type this. They will soon be able to send free emails, make free pc to pc phone calls, read all kinds of free educational stuff, watch entertaining or educational vids on youtube and yes, even learn languages. Hopefully they won’t just use the net to watch porn.

      I learned about freemium for free online as I was educating myself on my business venture–classified ads in my niche area of expertise. I’m not the first in this niche, but with the freemium model I think I can still grab my piece of the Internet to make a good business for myself and of course offer free to those who can’t pay but can tell their friends. Freemiums when successful make millions of people happy and only a few old competitors sad. That’s a good trade.

  17. James September 26, 2012

    Yeah but.. Live Mocha is not better than Rosetta Stone. It’s not even as good as Rosetta Stone.. there really is no reason to compare the two.. and there is also no reason to caste them as mutually exclusive choices. Rosetta Stone’s solution is worth every single penny. It really is a superior solution.

    Reply
  18. Fabian November 25, 2012

    Livemocha is a great language learning website because it is free and you can choose from the 38 languages they have.

    Reply
  19. News April 2, 2013

    What do know, LiveMocha was purchased by Rosetta Stone

    Reply

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