3 years ago
June 29, 2018
Where Is the Billion Dollar Language Service Provider?
The language services and technology market is huge and very traditional (read “old fashioned”). The market is worth between USD 40-45bn a year, depending on who you ask, and is serviced by 21,000+ language service providers (LSPs) and about 600,000 linguists, most of them freelancers, in almost every country in the world.
The industry is highly fragmented and the top 30-50 LSPs only control about 15% of the market. This is unusual; consider the technology space for example, where a few top players control 80% or more of the market…think Facebook, Google, Amazon etc.
Furthermore, with USD 615m in 2017 revenue, the currently biggest LSP TransPerfect has less than 2% market share! Despite the healthy total market size, there has never been an LSP generating sales of USD 1bn.
Hitting USD 1bn – Can It Be Done?
LSPs have experimented with a variety of business strategies over the years, from organic growth to M&A and from generalist to specialist approaches, with varying degrees of success, but still none has come close to hitting USD 1bn.
There are some stunning examples of traditional, mostly organic, growth. LSPs like Lionbridge and TransPerfect were founded in the 1990s and have reached over USD 600m in annual revenues. Other companies, like SDL, are very successful at providing both translation services, as well as the technology required to drive those services.
Companies such as RWS and Keywords Studios are doing a sterling job of carving out a niche in specialist markets: patents and video games. These LSPs act as a one-stop-shop, using domain expertise to offer customers a complete business solution that goes beyond just translation. In return, they receive well above market returns and valuation.
There are several other companies that are implementing buy-and-build strategies, ie. trying to grow by acquiring other LSPs.
Then of course there are online translation agencies, like OHT and others, who have made amazing achievements in the number of customers and projects they have attracted in a relatively short space of time.
There are some very successful LPSs who seem to have all the right ingredients for success: strong management and strategy execution, smart people, access to capital and advanced technologies.
And what’s more, the market climate – a huge and growing language services and technology market – suggests that the USD 1bn prize is ripe for the picking. One has to wonder, therefore, why no one is selling for more than one billion dollars a year, a mere 3% of the market.
Could it be that the USD 40-45bn estimate is overinflated? Well, a quick, back-of-the-envelope calculation shows it is indeed reasonable: take the number of linguists, their average employment level, the number of words they translated, and the cost per word, and you will quickly see that USD 20-50bn is the right range for the size of the industry (punch the numbers and see for yourself).
You could go round in circles for days discussing the reasons why no one has broken the USD 1bn mark. However, it is an futile discussion because, presumably, if it were possible for an LSP to break the USD 1bn barrier using one of the traditional routes, then surely at least one of the 21,000+ LSPs, would have got there already.
More Than One Path to Growth
As the saying goes, there is more than one way to skin a cat. Likewise, there is more than one way to take an LSP to USD 1bn in revenues, two in actual fact. One option is to create an industry consortium. The other is to build a Hybrid LSP. OHT is engaged in both endeavours. Firstly, by working with the “United Translation Agencies” consortium. Secondly, and more avidly, by focusing on the Hybrid LSP approach.
OHT has been spurred into action primarily by the rapid advance of NMT, since NMT is directly relevant to the creation of a Hybrid LSP. Indirectly it also triggers the need for a consortium like UTA.
Neural Machine Translation (NMT) engines are already providing human-like quality in several languages and domains. The most important thing about NMT is the exponential rate at which the quality of NMT engines improves. It took NMT just 2-3 years to surpass all previous machine translation technologies.
At the current rate and providing NMT engines have the right infrastructure and are embedded in the right processes, NMT will be able to replace humans in most translation projects within a few years.
NMT is a tsunami that is about to hit the language industry, engulfing the most traditional players first
NMT is not “yet another” technology. It is a tsunami that is about to hit the language industry, engulfing the most traditional players first. However, in the same way that a freelance translator found on an online marketplace cannot replace an LSP in serving business customer requirements, a good NMT engine is not enough to replace an LSP in real-life projects for business customers. This is obvious to members of the language industry, and the relative market share of freelance sites illustrates the same point.
In order to handle translation projects, business customers need the entire “vehicle”, not just the NMT “engine”. OHT is the first Hybrid translation agency, providing business customers with a complete hybrid solution based on dynamic NMT selection, human post editing and professional quality control. We are also able to process hundreds of thousands of projects in parallel.
Hybrid, NMT-based translations keep getting better and better, their cost is substantially lower than the cost of human translation, they are done faster and have fewer “human errors”. For the business customer, especially a high volume business customer, getting the same quality, faster and for a fraction of the price is a no-brainer. Most customers consider translation a commodity, and are prepared to replace their current LSP if they can get the same quality, at a better price and faster, elsewhere.
It is easy to see why the Hybrid model is a real “disruptive technology”, a game changer. In languages and domains where its quality is good, it beats any traditional LSP or professional translator by a knock-out.
The first billion dollar LSP may be a Hybrid vendor that has taken market share from traditional, incumbent, LSPs.
The potential for reaching a billion dollars or more is clear. Assuming that NMT continues to improve, business customers will shift to vendors, like OHT, which deliver Hybrid, NMT-based, translations. As with other technology revolutions (think Kodak and digital photography, typewriters and word processors etc.), the shift can be swift and massive, a landslide.
It is always hard for the incumbents to anticipate and prepare for a monumental change in their industry, even when they see it coming. It may be easier for younger companies, like OHT, which is 9 years old. OHT already switched to Hybrid a year ago and we are promoting a few initiatives and providing a few services in the space, e.g. ONEs – OHT NMT Evaluation score and more.
United Translation Agencies
Most LSPs I spoke with do not agree that NMT is going to revolutionize the market. Most of them do not (yet) see any loss of business to NMT, and some think that NMT is just another technology that may be good for simple translations but will never suit complex projects.
While I do not share this view on NMT, there is still a way to get to a billion dollar LSP, with or without NMT.
In creating a consortium of leading LSPs and later combining them to make the world’s largest LSP, it could be possible to get there. Before going into details, one has to remember that no strategy has yet been successful in getting any LSP to one billion dollars in annual sales (or close to it). TransPerfect, the biggest LSP, which has grown mostly organically, is still USD 385m short of the USD 1bn mark, with 2017 revenue of USD 615m.
United Translation Agencies (UTA) is a concept and a strategy for building a billion dollar LSP relatively quickly.
The idea is to initially create a partnership of approximately 40 LSPs, each with at least USD 7m in revenue and at least 7 years on the road (7×7), although the sweet spot is LSPs with USD 10-50m per year. These LSPs will not need to change anything in how they work. At first they will just agree on partnering, creating smooth and efficient work processes, a common payment settlement procedure and run some coordinated marketing efforts, e.g. putting a shared logo on their sites, adding it to marketing material etc.
So the modus operandi of the member LSPs is preserved, with no additional overhead. Their work with other UTA LSPs is more efficient because they agree in advance on prices, process, project handling, etc.
In the next phase, UTA members will be able to work on the same translation management platform (e.g. OHT, SmartCAT, XTM etc.) in order to move projects between them and manage payments even more efficiently.
Just by taking these simple, mostly declarative, steps, participating LSPs will immediately benefit from being a part of one of the world’s largest translation brand. They will get more business thanks to brand recognition. They will instantly become known globally and not just locally like today and, naturally, they will be more efficient and more profitable.
A good analogy is the Big Four accounting firms
A good analogy can be found in the major accounting firms. Ernst & Young for example, bought local accounting firms and made them part of the global brand. A similar partnership also exists in IT services, e.g. the GWA – Global Workspace Alliance, where 11 member companies provide IT services in 90 countries with over 30,000 employees.
Apart from getting to billion dollars in aggregate revenue quickly, UTA is all about creating opportunities! The opportunity to be much bigger much faster, the opportunity to generate rapid growth, the opportunity to be part of the world’s largest LSP, the opportunity to have an exit on better terms, and the opportunity to take part in an industry revolution.
The idea is that once there is a sufficient number of members working together smoothly, it will be possible to create a financial package that puts them all under the same roof, effectively creating the world’s largest LSP. So the members are local but the total business is global, just like in the E&Y example.
The advantages of this approach are clear; it is easy to implement; there is no financial risk until all LSPs work smoothly together as partners; when relevant doing a standard financial deal for all LSPs is faster than negotiating M&As one by one; LSPs do not need to change the way they work; it is easy to ramp up once the concept is working and proven with a small group, etc.
Finally, this approach / strategy has never been tried before, and it may actually work.
A Call to Action
Now is a time of change. The huge, traditional, language industry is transforming, driven by technology and market forces. What once was is not what will be.
These changes create great opportunities. It is hard to predict which approach will create the new winners in the future market, Hybrid, UTA, a combination of both, or something else entirely, but it is very clear that companies with the right strategy and execution will win big, and some of them may also reach the one billion dollar mark, or higher.
LSP executives interested in learning more about UTA are invited to email me directly: ofer at onehourtranslation dot com.