The translation industry is huge, around $40B/y, still, unlike other industries of that size, there is no 1 Billion Dollars LSP! None of the vendors, regardless of strategy, managed to get to this level of sales, which represents less than 3% of the total market size. In the following post I am suggesting two new approaches that may lead to a billion dollars LSP.
The translation industry — a very fragmented market.
The translation and localization market is huge and very traditional (read “old fashioned”). The market size is $40-$45 Billion a year (depending who you ask), and it is served by 21,000+ LSPs ((Language Service Providers, ie translation agencies), and about 600,000 linguists, most of them freelancers, in almost every country in the world.
The translation industry is highly fragmented. Unlike many other industries, esp. in the technology world, where few top vendors control 80% or more of the market (think Facebook, Google, Amazon etc.), the top 30–50 LSPs control only about 15% of the market.
Furthermore, with $615m in 2017 revenue, the biggest LSP, TransPerfect, has less than 2% market share! Actually, despite healthy total market size, there has never been an LSP generating $1B a year.
The questions that comes to mind is can there be a $1B/y LSP?
and more interesting, what strategy can lead to a $1B+ LSP?
Hitting USD 1B — Can it be done?
The translation industry has many smart and talented people, in many different countries with access to great human talent, and a lot of capital. Different LSPs tried different business strategies over the years, some more successful than other.
There are some stunning examples of traditional, mostly organic, growth. LSPs like Lionbridge and TransPerfect started in the ’90s and reached over $600m in annual revenues.
Other companies, like SDL, are very successful at providing both translation services, as well as the technology required drive those services.
Companies like RWS and Keywords studios are doing a wonderful job focusing on specific domains, patents and video games. They use domain expertise to provide customers with a complete business solution, not just translation, and get well above market returns, and valuation.
There are several other companies that are implementing Buy & Build strategy, ie. trying to grow by acquiring other LSPs. And of course there are online translation agencies, like OHT and others, that reached in a relatively short time, amazing achievements in number of customers, and projects they handle.
Still, one has to wonder; there are some amazing LSPs, with wonderful execution, smart people, access to capital and advanced technologies, and above all huge market that keeps growing. So how come no one is selling for more than one billion dollars a year??!! Which are merely 3%(!!) of the market.
Could it be that the USD 40–45B/y market size estimate is overinflated? Well, a quick, back-of-the-envelope, calculation shows that it is indeed reasonable. Take the number of linguists, their average employment level, the number of words they translate per hour/day/month/year, and the cost per word, and you will see that $20B to $50B is the right range for the size of the industry (plug your own estimates and see for yourself).
There can be a long discussion about the reasons no one has broken the USD 1B mark. However, it is a futile discussion; because, presumably, if it was possible for an LSP to break the USD 1B/y barrier using one of the traditional routes, then surely at least one of the 21,000+ LSPs, would have got there already.
I do think there is a way, and even more than one!
Not only that, it seems like the right time to get to a Billion dollars LSP is now!
Getting to Billion dollars in annual sales
I think there are 2 ways to get to a billion dollars LSP. One, by building an industry consortium, United Translation Agencies. The other, by building a Hybrid translation agency. In the spirit of full disclosure, OHT is focused on the latter, and assisting the former.
The trigger is the fast advance of NMT, as I previously wrote, (https://slator.com/sponsored-content/neural-mt-and-blockchain-are-about-to-radically-transform-the-translation-market/)
obviously NMT is directly relevant to the creation of a Hybrid LSP;
indirectly it also triggers the need for a consortium like UTA.
As I previously wrote, 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 in which their quality improves. It took NMT just 2–3 years to pass all previous machine translation technologies, and at the current rate in just few years NMT engines used correctly, with the right infrastructure and process around them, will be able to replace humans in most translation projects!
NMT is not “yet another” technology,
it is like a tsunami that is about to hit the translation industry.
NMT is not “yet another” technology, it is like a tsunami that is about to hit the translation industry, esp. the traditional one. Having said that, to replace translators in real-life projects for business customers, a good NMT engine is not enough. Just like a freelance translator from some freelancers website, cannot replace an LSP in serving business customers requirements. This is obvious to members of the localization industry, and the translation market-share of freelancers sites shows that as well.
In order to handle production translation projects, business customers need the entire “vehicle”, not just the NMT “engine”. OHT is the first Hybrid translation agency, providing business customers with 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 less “human errors”. For the business customer, esp. 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 they will replace their LSP if they get the same quality, at a better price, faster.
It is easy to realize why Hybrid 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 Dollars LSP may be a Hybrid vendor that took market share from traditional, incumbent, LSPs.
The Billion dollars or more potential is clear. Assuming NMT will continue 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. this 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 switched to Hybrid already a year ago and we are promoting few initiatives and providing few services in the space, e.g. ONEs — OHT NMT Evaluation score and more (https://slator.com/sponsored-content/make-neural-machine-translation-better-faster-a-new-way-to-measure-nmt-quality/)
United Translation Agencies
Most LSPs I spoke with do not agree that NMT is going to revolutionize the market. Most of them do not see (yet) 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 fit complex projects.
While I do not share their view re. NMT, I think there is still a way to get to a Billion dollars LSP with or without NMT.
The idea is to create a consortium of leading LSPs and later combine them to make the world’s largest LSP. Before going into details, one has to remember that, to date, no strategy was successful in getting any LSP to one billion dollars in annual sales (or close to it). TransPerfect, the biggest LSP, that mostly grew organically, is still $385m short of the $1B mark, with 2017 revenue of $615m.
United Translation Agencies (UTA) is a concept and a strategy that can build a billion dollar LSP relatively quickly.
The idea is to initially create a partnership of approx. 40 LSPs, each with at least $7m in revenue and at least 7 years on the road (7x7). The sweet spot is LSPs with $10m to $50m/y. These LSPs will Not need to change anything in how they work. At first, they just agree on partnering, creating smooth and efficient work process and a payment settlement procedure between them. In addition to some coordinated marketing, like putting the consortium logo on their site, adding it to marketing material etc.
So the modus operandi of the member LSPs is preserved, with no overhead. Their work with other UTA LSPs is more efficient because they agree in advance re. prices, process, project handling etc.
In the next stage, 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 major accounting firms, like Ernst & Young, that bought local accounting firms and made them part of the global brand. A similar partnership also exists in IT services, e.g. GWA — Global Workspace Alliance, 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 will put them all under the same roof and effectively create 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&A 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 was never tried before, and it may actually work.
A Call for Action
Now is a time of change, the huge, traditional, translation industry is transforming; the change is driven by technology and market forces. What was once, 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, 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 dollars mark, or higher.
LSP executives interested in learning more about UTA are invited to email me directly: firstname.lastname@example.org.