livemocha-screenSeattle online language community Livemocha has been acquired by Rosetta Stone for $8.5 million in cash.

The deal is hardly a home run, given that Livemocha had raised more than $19 million in venture capital from Maveron, August Capital and others since it was founded by entrepreneur Shirish Nadkarni six years ago.

It’s also an odd pairing given some of the biting comments that Livemocha CEO Michael Schutzler has made about his competitor over the years, at one point calling Rosetta Stone’s online efforts an embarrassment.

Michael Schutzler
Michael Schutzler

“They have a long mountain to climb if they are going to compete against us head-to-head in terms of online language learning, which is what they are trying to pivot over towards,” said Schutzler in a 2010 interview with me. “But, again, their price point doesn’t make any sense as far as I am concerned and they really don’t have anything to offer.”

Schutzler, a former Classmates.com and RealNetworks executive, later told GeekWire that his company would come out on top in the market.

”We’re winning and our sales are growing! Soon, we will be profitable and then it will be over for some of our competitors,” he said in a GeekWire Startup Spotlight two years ago.

Those were fighting words at the time. But the companies appear to have gotten beyond the rhetoric, and made the match work. In a press release today, Schutzler called Rosetta Stone — known for its yellow packaged software products — a “marvelous partner for us.”

Rosetta Stone CEO Steve Swad said that Livemocha would help it transition more quickly to the changes in online language learning, calling the two companies a “perfect fit.”

livemocha-spanish3“We are in the process of transforming Rosetta Stone to be the most dynamic and ubiquitous technology-based learning platform in the world,” said Swad. “Our acquisition of Livemocha will help accelerate that transformation. With Livemocha and its vibrant online community on our side, Rosetta Stone will reach more people and change more lives than ever before.”

Asked today about some of his past remarks, Schutzler said things have changed at Rosetta Stone under the direction of Swad who was appointed CEO last year.

“I met the new CEO a year ago. We connected immediately and consider each other friends first,” he said. “He has been rebuilding the company and has frankly re-tooled the entire culture. It’s a great fit for both companies.”

Livemocha boasts more than 16 million members, people from all over the world who sign up to take the company’s online language courses. The 35-person Livemocha team will continue to be based in Seattle.

The $8.5 million valuation isn’t that great given how much capital Livemocha raised, but Schutzler noted that the financial markets value education startups much differently than other Internet companies.

“The typical multiple in this space is 1-1.5x trailing twelve revenues. That’s a tough sell to investors who can find many deals with higher expected outcomes,” Schutzler tells GeekWire. “We were growing sales but still too small. It takes time and a powerful sales channel to grow an education business. Rosetta, meanwhile, has a full operation that can take advantage of every aspect of our business. They will be rebuilding many of their products on our platform. It’s a significant reduction in time and cost to market for them.”

Here’s the message that Livemocha CEO Michael Schutzler sent out this morning about the deal:

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.

Comments

  • Stevie

    “brand new product experience that we have been building and testing over the past two years” – TWO years for a new product. Were they building a car?

  • http://www.facebook.com/kishari Kishari Sing

    Rosetta Stone couldn’t make their own online community model work, esp since their language acquisition model is based on memorization, not usage. However, this acquisition of LiveMocha still won’t help Rosetta gain more share, esp at their outrageous price point. Yuck.

  • Paul_Owen

    John, nice job contrasting the historic rhetoric with today’s “feel good” message. I used and enjoyed LiveMocha. Too bad the exit didn’t match the early hyperbole (or my personal experience with a really cool service). Anyhow, good job reaching back to the GW archives for the before and after stuff. Thank you.

  • Anup Kejriwal

    Congratulations Shirish & Team. You guys successfully created the world’s largest community for language learning.

    • Gosia

      and u let Rosetta Stone buy you out for a measly amount and they killed it.

  • Thomas R.

    I believe this is what they call “eating crow.”

  • http://www.christopherbudd.com Christopher Budd

    I’m really disappointed by this. I like Livemocha and this feels to me more like an acquisition to kill off a competitor rather than build one’s self up. I bet they’ll merge some pieces of Livemocha but otherwise just kill it and try to force everyone to pay Rosetta Stone’s outrageous fees (there’s a reason that King County Library System and others don’t offer them anymore).

    • Bdoom

      The best way to get rid of a company buyout like Rosetta is to make open source software. For instance, make all the software open-source and charge to download the source. Meaning, the developers of livemocha could make it free to use, but it costs money to download it. Say like, $50 a pin code for a download or something.

    • Lili

      You guessed well… I HATE SO MUCH ROSETTA STONE FOR HAVING KILLING LIVEMOCHA. Now the lessons on livemocha are a piece of garbage, and they probably did it on purpose because despite of the tons of criticisms and suggestions users sent to them, they refuse to improve their product.
      It’s clearly the murder of a rival, but they won’t get away with that ; I hope it will give such a bad reputation to Rosetta Stone that the firm will die.

  • Henry Albrecht

    I admired the awesome UX, design and vibe of LiveMocha. Perhaps they were a little ahead of their time, but at least the social-learning-worldwide dream has a chance to live on. And on the topic of pricing, a few hundred bucks for learning a language? That seems incredibly cheap compared to the standard model (in-person classroom learning, with books, paper, and little active practice).

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