When Tom Adams took the helm at Rosetta Stone in 2003, it was a $10 million family business where the most pricey product ran $40. Today, the language-learning solutions company is a very different entity. Last year, revenue came in at $209.4 million. Rosetta Stone’s highest ticket item is now a hefty $699 and the company is public—trading at just above $30 at the end of July, a respectable bump from its $18 IPO price in April.
How did Adams pull off the transformation? “We repositioned,” says the 37-year-old, who brought six years in commodity merchandising, an MBA from INSEAD and “a lot of passion for the subject matter” to the challenge. A native of Sweden who grew up in France, he speaks French, Spanish, Swedish and English, and is currently learning Russian.
Arlington, Virginia-based Rosetta Stone’s rapid growth began when Adams took the CEO post four months after the founding CEO, Allen Stoltzfus, died of a heart attack. “There was a healthy culture and we had some outstanding people, but the heart and soul of the company was kind of gone,” he recounts.
Setting out to build awareness, Adams embarked on a major marketing campaign touting Rosetta Stone’s “immersion instruction” methodology. Shunning traditional elements of language instruction, such as memorization, grammar drills and word translation, the company’s software, online and audio language self-study learning tools instruct by immersing users in the spoken language. For example, a viewer might be presented with images as the voice of a native French speaker pronounces words and the words themselves flash across the computer screen. Students learn at their own pace through trial and error. The software also employs proprietary voice recognition technology to check and correct pronunciation.
The result? A faster, more efficient way to build real-world, rather than academic, skills in more than 30 languages. “Our mission is to teach you conversational proficiency, not to turn you into a linguist,” says Adams. “The value is that it’s a proven method and also convenient—you can use it anywhere.”
Customers find the method effective. Ninety-two percent of individual customers surveyed by Rosetta Stone rate it six or higher on a 10-point scale, and 76 percent report recommending it to friends or associates. Named for the artifact that unlocked the secrets of Egyptian hieroglyphics, Rosetta Stone is now used by the U.S. Army and Marines, as well as the Department of Homeland Security. And, while individuals account for 80 percent of total sales, corporate and institutional sales are growing sectors for the company.
Arguably as effective, if not more so, has been Rosetta Stone’s approach to translating its skill-building success into a marketing and distribution plan. The company has invested ambitiously in advertising—from print ads featuring a “hard-working farm boy” learning Italian to woo a supermodel to TV spots in which Michael Phelps fulfills his need for speed by learning Chinese with Rosetta Stone.
How did such a relatively small company justify this media blitz? “We made advertising accountable,” says Adams. “Our approach is to run ads with a call to action. Customers identify the ad they saw by using a coupon code to get, for example, free shipping. That way we can determine the ROI of an ad at a certain time on a certain channel or in a particular magazine.”
Rosetta Stone also made it possible for potential customers to test drive its programs at yellow kiosks installed in airports and shopping malls, where products can be both sampled and bought. Its products are available through Amazon.com, Apple and other retailers, but direct-to-consumer channels such as the kiosks, Web sites, an institutional sales force and call centers account for 83 percent of total sales.
“We are passionate about selling direct because then you control your destiny,” Adams explains. “You’re communicating directly with your customers and are able to scale at your own pace. You’re not dependent on a given store and its strategies.”
An ongoing economic slump may well impact Rosetta Stone’s future sales, but the company enjoyed a strong start to 2009. In fact, total revenue grew 41 percent in Q1 2009, reports Adams, who sees plenty of room for additional growth.
“On a five-year basis, we think we can be a multiple of the size we are today,” he says. “Market research shows that more than 90 percent of the $83 billion global language learning industry is outside of the U.S. Right now only 5 percent of our revenue comes from outside of the U.S. So if we can have the kind of success we have had here internationally, we could be huge.”