Rosetta Stone started as a family business, and was driven by Stolzfus’s and Eugene’s idea of offering the best language learning solution. They believed they will succeed, and were not afraid to invest in an expensive irrevocable license, which helped them to offer the highest quality program with a feature not available to their competitors. According to first lesson of “ Hidden Champions of the Twenty First Century” the hidden champion is a company which is the number one or two in the global market based on its market share.
Rosetta Stone’s market share is just 8 % (calculation is based on the industry revenue from self-study options of language learning industry), but the company sells products in 30 languages in 150 countries, and is the only publicly hold language learning program. . To recognize the market leader in a certain industry the market has to be clearly defined. Rosetta Stones operates in a learning software industry in a language self-study market. For Rosetta Stones to “ increase” the market share it has to narrow it down.
To facilitate growth the company is developing its international business through subsidiaries, which results in a higher international presence, and higher revenues. At the same time, the high market share itself is not enough to be classified as a hidden champion. Market leadership is more than just market share, the more important quality of a hidden champion is a constant growth (the price of Rosetta Stone shares is constantly increasing) earned by superior performance, not through aggressive pricing.
Rosetta Stones is recognized as one of the best brands on self- learning programs industry, but we don’t have the evidence that customers are ready to pay higher for the quality offered by Rosetta Stones. At the same time, the claim to market leadership in not always confined to market share, but includes performance attributes such as technology, innovation, quality and reputation The company developed most of its own technology specially designed to handle the complexities of languages, focusing on customer needs. To offer the best quality service the company is investing 10. % of its total revenue on research and development, and protect its intellectual property to keep the position. The success of the operational excellence strategy can be proved by the recognition of the company as the best corporate learning solution in 2008. To offer the best quality for the minimum price Rosetta Stones is working closely with manufacturers, which is also a lesson learned from “ Hidden Champions”. Because of the constant innovation, investment in the research and development, and desire to become truly global the company is maintaining the market leadership.
The second lesson learned from “ Hidden Champions” is to hire the right, and the best employees who will have the decision power. There is no information in the case proving the company is doing it, so it would be the advice to follow. To achieve efficiency and minimize costs Rosetta Stones is obtaining most of its products and packaging components from third party contract manufacturers, which is not always the best way to maintain and control quality. The advantage of the company is that it has strategic offices in the each regions of the country, which adds flexibility and local focus.
Based on “ Hidden Champions of 21 century” definition depths relates to the number of variants of the same product, the completeness of a problem solution, or the value chain covered. Most of hidden champions have a deep value chain coupled with a narrow definition of the relevant market. Rosetta Stones does outsource non-core activities( products and packaging components), but their core value is R&D, which is very secretive and protected by patents and licenses. Rosetta Stones follows the path of hidden champions in having a very focused strategy.
The company is offering educational software that includes 31 languages up to 5 levels of proficiency including all types of language learning products: language learning community Shared Talk, compact discs, online activities, digital tools, audio lessons, management programs, and tools for parents and teachers. Such a high level of vertical integration facilitates company’s growth and attracts additional lesson learners to the brand. At the same time, deep vertical integration helps Rosetta Stones to stay ahead of competition by satisfying all customer’s needs. he Besides new customers strong focus has a hidden risks, attributable to hidden champions. Strong focus makes the company highly dependent on its narrow market, so in case of crisis, technological change or decrease of customer demand the company can lose the biggest part of its revenues. 87 % of Rosetta Stone revenues come for CD-Rome sales, and 13% from online subscription, so to protect revenues it would be beneficial to diversify the products. Lesson 5- Focus Lesson 6- Innovation for Competitive Advantage Lesson 8- Closeness to Customers