Rosetta Stone Livemocha acquisition

Rosetta Stone acquires Livemocha for $8.5 million in Cash

The group of Rosetta Stone contenders shrunk to two today. According to a press release Rosetta Stone has acquired Seattle based language learning community Livemocha for $8.5 million in cash.

One could say that this is kind of ironic as Livemocha started out as the rival to the language learning throne always positioning itself as a more innovative, more modern and inexpensive alternative to RS. From the beginning the startup had seen massive growth in terms of users and had also attracted some significant funding over the years. According to GeekWire the total amount was more than $19 million which means that Rosetta Stone got a pretty good deal but Livemocha’s investors surely not.

So what happened? Why is Livemocha sold off for cheap to the company they wanted to replace? At this price it seems that the numbers must have been pretty bad. As I mentioned in my post about babbel.com raising $10 million just last week, Livemocha never got aggressively into the mobile learning space like for instance babbel.com or of course busuu which might have been decisive. To my mind it was an important key factor missing to say the least.

Before busuu and babbel.com launched their mobile applications Livemocha had been dominating the space in terms of users. But that lead was lost in a matter of months after busuu launched its first iPhone apps, followed by babbel.com which also decided to acquire the startup that had created the apps for them.

From what I can tell Livemocha never really recovered from that shift and now it is essentially sold for parts. According to the press release Livemocha’s acquisition is part of Rosetta Stone’s strategy to get its learning products into the cloud. I think it’s about the 16 million users and the possibility to get their own low cost product on the market without cannibalizing their core business of premium products. On the other hand, Rosetta Stone can now directly compete with busuu and babbel.com.

One potential strategy could be to offer Livemocha for free similar to Duolingo and then make the upsell to Rosetta Stone products for those who are really serious about learning languages. As Rosetta Stone Chief Product Officer West Stringfellow says in the press release

“But even more exciting, it gives our customers more choice. Livemocha presents us with a low-cost or even free alternative product to offer learners around the world. It becomes a ‘ladder of learning and value’ for our customers.”

Livemocha’s CEO Michael Schutzler will assist in post-acquisition integration efforts as a senior advisor to Rosetta Stone CEO Swad. Livemocha will remain in Seattle. Below you can read Michael Schutzler’s email that got out to all Livemocha users today.

Dear Livemocha Community Members,

Over the past five years, Livemocha has grown into a supportive, global community of over 16 million members, working together to learn, teach, and practice a new language. The learning experience that each of you creates makes Livemocha effective, meaningful, and fun.

We are passionate about building a world in which every person is fluent in multiple languages, and today, I am thrilled to announce that we have taken the next step towards that goal.

After months of hard work and preparation, Livemocha has agreed to merge with Rosetta Stone.

Rosetta Stone has built one of the most durable and well-known education brands in the world. They have created powerful technology-based language learning solutions that are the envy of the industry. By combining our strengths, our technologies, and our dedicated focus to serve you well, we will transform the world of learning.

Please rest assured that Livemocha will continue to be the learning experience, product, and community you know and love.  Indeed, Livemocha – in partnership with Rosetta Stone – will now offer more languages, add powerful new tools, and become available on more devices than ever before.  And, thanks to your feedback and the participation and the support of the talented team at Rosetta Stone, we will continue to roll out the brand new product experience that we have been building and testing over the past two years.  Stay tuned for more announcements soon!

We are and always will be committed to building a world without barriers.

Onward!

Michael Schutzler

CEO Livemocha Inc.

This latest development makes it even more clear to me that the freemium model was a bad idea for the language learning space in general. Sure, busuu have managed to build a profitable business based on it but the team also ran a very lean startup, fairly differently to what I have seen from Livemocha over the years.

As I pointed out, now that its rival babbel.com raised a significant round and with Livemocha joining Rosetta Stone it seems to be inevitable for busuu to either raise a Series B round or get acquired. My tip still is that busuu is going to raise a $10 million+ round in the coming months.


Picture by Manuel Faisco via Flickr

Kirsten Winkler is the founder and editor of EDUKWEST. She also writes about Social Media, Digital Society and Startups at KirstenWinkler.com.

  • chinamike

    Kirsten,

    Great ideas, thanks.

    Hmmm, another reason may simply be that one is located in America and is Americas centric and the other is located in Europe and is in the heart of the richest pay-for-language-learning area. Live Mocha/Rosetta, and the Europeans were very strong where the other was fairly weak (I do need to look at the figures though). Indeed, Rosetta Stone has been steadily shrinking and they seem to want to bail on the American market.

    In other words, I don’t think this was mainly a technology issue, it was rather that they got caught in a downsizing market and this is a grab for market share by Rosetta.

    I also am guessing that Live Mocha didn’t take up pads because pads would have exposed their educational shortcomings. In orther words, they were weak at instruction and pads would have highlighted this. Being instructionally weak was in their DNA from the very start.

    My guess is that the inherent weaknesses of Live Mocha ultimately caught up with them. They weren’t that good at language instruction only offering a place where people could learn from each other. Not a lot of high value there.

    I think the biggest advantage for Rosetta is in eliminating a competitor that was putting downward pressure on prices. My guess is they are in it for Live Mocha’s connections in South America.

    • http://kirstenwinkler.com KirstenWinkler

      Yeah, it was kind of a mixed bag. On the one hand you had the crowd sourced / translated free stuff and on the other hand the polished paid courses from Pearson and Collins. Wonder if those partnerships will remain, probably not.

      LatAm is a good point, especially Brazil and the partnership with Telefonica. But all in all the numbers must have been pretty ugly if RS just paid a bit more than $0.50 per user.

  • http://twitter.com/English_safari Guido Gautsch

    Hey Kristen,

    So what’s the alternative to the freemium model in your opinion? The babbel way, i.e. one lesson for free as a taster and then pay all the way? Or free but ad/VC-sponsored?

    • http://kirstenwinkler.com KirstenWinkler

      I think for the language learning market the classic pay all the way model is best. But you need a compelling product that delivers results, of course. There are simply too many barriers in the learning process which lead people to drop out. So even if you have millions of users (accounts) only a fraction tends to be active and therefore generating ad revenue.

      busuu seems to have found a way to make it work based on a strong community feeling and therefore strong retention but still the classic model works best from what I see. And serious learners are always willing to pay for a good service or personal tutor.

  • http://twitter.com/Taiwanosaurus Taiwanosaurus

    Busuu and Babbel are both going to be under similar pressure that LM faced post funding now that they have VC money and all sorts of new metrics to deliver on. The killer app that Busuu may have is that it was around long enough to see how much easier it is to monetize via mobile and be able to respond. In the long run I’d bet against any desktop web first business dominating in language learning; look at companies like Voxy to be able to scale at vastly lower cost due to the marketing and technology benefits of the mobile platform ecosystem.

    • http://kirstenwinkler.com KirstenWinkler

      The thing is that busuu and babbel.com waited to raise their rounds until they had a proven business model. Livemocha raised huge amounts based on the premise that “as soon as we reach x number of users, we turn on revenue” which obviously did not work out.

      So busuu and babbel.com probably raised with much better conditions. Question is how the exit will look like. Acquisition or IPO.

  • saeideh

    I feel like I’ve lost a member of my family after that :(
    I’ve tried numerous language learning methods
    & to my taste, rosetta stone was one of the worsts while livemocha was top one
    it was like a real world, a community
    why not they keep the community & all features
    at the same time they can change the lessons as they want