Lionbridge CEO Rory Cowan Explains Didiergate and the World of Freelancing to Analysts

…y hoy especialmente está llena la ruta.

(Fito Páez, “El chico de la tapa”)

One of the beauties of modern capitalism is the obligation of companies whose shares are publicly traded to engage in certain rituals of disclosure. One of these is the conference call by senior management to discuss quarterly results. By coincidence, it was Lionbridge’s turn this week to roll out its numbers.

Pity poor Lionbridge. It has had a tough week. It unveiled some pretty dismal numbers, and the market battered its shares. It was pretty grim, like a cage match between the Tasmanian Devil and Bambi. In an overall positive week in which markets were generally up, LIOX closed on Friday being worth 20% less than on Monday. Ouch.

In the face of this, a gaggle of irate blog posts by freelance translators was less than a footnote. Fleas can make you itchy, but they’re just a distraction. Nonetheless, “Didiergate” did make a brief appearance during the Q&A between management and analysts. The whole transcript is here (free, but you have to register).

I proceed to pick out a few highlights. An analyst made the following question to CEO Rory Cowan:

Kevin Liu – B. Riley & Company [Analyst]
Hi, good morning. First question here – your guidance for Q4 here is fairly consistent from a revenue standpoint as the prior quarter. But looking at kind of the impacts on margins, one you guys have accelerated restructuring, so would expect maybe some initial benefits there. But beyond that, Forex seems to be working against you at least for now on a sequential basis, and you guys have also sent out this memo requesting discounts from your translator base. I’m – so curious as to your confidence in extracting these discounts and what sort of net impact you expect on the margin line on a sequential basis?

I know, I know. You recognize the individual words, but they don’t mean anything when put together. Luckily, I speak some jargonese. The analyst is asking if the company thinks it can secure the 5% discount that set the blogosphere ablaze. Then he asks about the net impact on profit margins.
What follows is really remarkable:

Rory Cowan [Lionbridge CEO]
Right, I’ll handle some of this and then Don’s going to respond to it. First, I think two things – let’s take this in reverse order. We have gone out for a worldwide translator database and asked for discounts. And the reason for that is is [sic] we’re finding that – what’s happening it seems to be with workers in the Cloud right now is there’s quite a lot of fraud in a lot of these worked – these meeting places and job posting places where small businesses post projects and individual[s] respond to them, it seems if there is a not a lot of follow through on payment.
One of the things that we do is, of course, we’re a very high integrity and do pay people, first.

Did you see it? Blink and you miss it. The chief executive officer of Lionbridge is telling the analyst ever so indirectly that the 5% discount will be secured. Why, you ask? Well, Kevin, because there are a lot of sleazy job-posting sites for freelancers in the Cloud (apparently we’re in the Cloud) where scammers post project offers and never pay up.

OK, hold that thought for a second.

OK, now read on.

Then he goes on to say that we, Lionbridge, on the other hand, are a very high integrity company and “do pay people.”
 
Please take a second or two to let that sink in.

Done? Ok, let’s proceed.

He is saying that Lionbridge is a high integrity company, not because of its corporate responsibility, environmental awareness, unimpeachable ethics or opportunities for career development… No, no, no. None of that sissy crap.

He is claiming moral superiority because his company pays people for their work.
That is a pretty incredible statement. Somehow, I can’t imagine Steve Ballmer getting up and saying: “We here at Microsoft pride ourselves on being a high integrity company. And you know why…?” pausing as he chokes back a tear. “It’s because we pay our people, goddammit! (Not like those scumbags over at Apple.)”

I know what you’re thinking: “Big surprise! The guy who hired Didier Hélin is a buffoon of monumental proportions!”
But wait, there’s more:

Second, we’re finding the translators we’re [transcription error; should read: “are”] getting great productivity with our platform. And so, I think that we should be able to share some of that productivity – share the benefits of that productivity with them.

Oh, no, he didn’t! He played the technological productivity card (a justification which, by the by, was absent from Didier Hélin’s Halloween horror).

Reality check. Lionbridge is paying very low rates already. From that you have to subtract the translator’s subscription cost to use their Chitty Chitty Bang Bang translation tool. And on top of that they have to pay a fee to get to the front of the line in the company’s project distribution tool.
Now, thanks to increased productivity gained from using Translation Workspace, “we should be able to share some of that productivity… share the benefits of that productivity with them.”
Translation: “Those greedy, money-grubbing translators! Zipping around in their Ferraris while our share price circles the toilet bowl! Surely they can cut down on a couple of champagne bottles a month to share some of the benefits of our superior technology with us! I mean, for Chrissake, Didier Hélin might have to cancel his season tickets to the Red Sox!”
But finally, he answers the question: will the translators bite? He goes on, tortuously:

So this is – I think – will we get 5% [from] everybody? That’s probably a little aggressive, but it’s certainly a nice place to start.

So there you have it, freelancers. Even Lord Vader thinks the Dark Side isn’t strong enough to get everybody to swallow Didier Hélin’s doodoo sandwich. “That’s probably a little aggressive.” (“But it’s certainly a nice place to start.” Meaning Didier Hélin can whip up another of his tasty concoctions at the drop of hat. And probably will, so get your knife and forks ready!)
However, there are still others that can embrace their destiny as minions of the Empire.
And we’re also finding that new translators are now coming to us, because they find that there are many more translators than they [transcription error: “there”] are companies with high integrity buying translation on the web.

Yes, the world is a big place. Basically, there are so many shady non-payers on the Internet and a freelancer’s chances of securing paid work are so slim that they will chew and chew that sucker and eventually gulp it down. Subliminally, what he is really saying is that if Luke and Han and Leia and the Wookie don’t buckle under, we can replace them with low-paid sand people faster than you can yell “green cards!” on the Mexican border.

It is significant that the head of a company that touts itself as a leader of the drive toward globalization via the Internet can paint such a depressing view of the “Cloud.” It is a gloomy and dangerous place filled with predators, fake companies, scammers, unpaid work, frustration and desperation. It’s basically a Charles Dickens novel with Wi-Fi hotspots. In contrast with the Land of Mordor, Lionbridge is the Shire, where hobbits frolic innocently. They frolic, that is, if they have a credit card and very, very low expectations.

The other image Cowan is conjuring of the Internet is that of an unregulated market with a limitless supply of qualified people. And to a room full of people who get regular salaries, the world of freelancing must sound scary. Cowan plays it to the hilt. Booooo! Recruiting for Lionbridge, he suggests, is similar to those street corners in the U.S. where illegal immigrants congregate for day labor. Mr. Cowan pulls up in his pick-up truck and yells: “I need two unemployed M.D.s with Mongolian and broadband access!” And he finds them on the cyber street corner. “Hop on board, fellas! Just one thing. We need to pay you 5% less than the last harvest. You know those new ladders we rented you are so good, we need to share some of the added benefit from all those extra apples you picked.”
There are six billion people in the world, after all. How hard can it be to find three or four thousand unemployed bilinguals with degrees, PCs, basic computer skills, a credit card, good grammar, writing skills, attention to detail, knowledge of electrical engineering, low self-esteem, an infinite capacity to absorb abuse, and a desperate need for the almighty (albeit shrinking) American dollar?

A Death Star “vendor manager” thinks like this: “Gosh, I have 322 professionals who fit that description in my database. No, wait, this woman is in here twice. OK, 321. Oh, this one’s dead. 320. And that one registered in 1999. He’s in prison now. 319. But he gets parole in January! He’ll need some quick cash. Let’s put him down as a maybe. And this girl just hates us. She’s the one who set up lionbridgesucks.com. Hmm, better not call her. 318…”

Call me crazy, but Cowan’s vision is not the Internet I know. The world of translation may be globalized but it is actually quite tiny. I can’t count the number of times I ended up working on projects with people I know in person purely by coincidence. Six degrees of separation? Bah. Three is too much. Two and a half, tops.

Sure there are non-payers. But there are several reliable databases that tell you who is and who isn’t a reliable outsourcer. The one I use most frequently is ProZ.com’s Blue Board. And I used to subscribe to the Payment Practices List (http://www.paymentpractices.net/Default.aspx), which is really useful, but I let my subscription lapse for lack of use. The thing is that fraud is so infrequent that I rarely need to check up on prospects. When an email comes out of the blue from someone who needs me ASAP for a presentation to be given in London, the telltale signs of fraud are so obvious that I do not even need to reply. Fraudsters are so lazy they even use the same names in the scam letters they send over and over again. I’ve been approached by scammers and fraudsters in person, on the street, more often than through the Internet.

The world is not only flat. It is also minute. The efficiencies from a global workforce immediately available through the Internet at a fraction of developed world wages are real. If you’re making tennis shoes.

Ok, that is one point I wanted to make: The Internet is not an absolutely opaque medium in which no one knows you’re a dog. So there.

And that leads us to the other major claim Cowan makes. “And we’re also finding that new translators are now coming to us.” Translation: If the current pool of translators balks at Didier Hélin’s culinary innovations, we can simply fire up the database. Next! And five thousand names pop up.
He is right about that. Up to a point. Given a large enough database and a sufficiently large number of registrants, it is possible to continuously burn through translators every time you drop a rung in the wage ladder. Translators will immediately mumble: “What about quality?” But that is not the point I want to make.

The type of workforce churn that Cowan is being so cavalier about comes at a cost. I know for a fact that their database is defective. I get called for projects long after I stopped answering their emails, out of sheer bewilderment. There are many other testimonies to that effect. They may claim to have 25,000 qualified people on their books. But how many of them are dead? Maintaining a database like that costs money. Do you seriously think a company as mediocre as Lionbridge is investing in that upkeep?
Of course not.

So the only option is to give the non-Spanish-speaking project manager the keys to the database and order him to use it like an Uzi. “Sprays emails all over Latin America, from Tierra del Fuego to the Rio Grande, and wait for someone to reply on the other end.” And pray someone (anyone) answers quickly. And delivers on time. With each hiccup, each dead person, each stoner and each unqualified person whose work requires thorough cleanup by the editors, deadlines get missed, quality declines and unseen costs mount up.

That is the reality of work in the Death Star. You see, the real danger is not those fly-by-night scammers on the Internet. No, siree.

Lionbridge is not a sleek Formula One dragster that is raking up the profits as it squeezes its freelancers, as many translators naively seem to think. It is actually a rickety bucket of bolts wheezing along the information superhighway because its corporate clients are hoarding cash and putting the squeeze on it.

China? Yeah, right. China… Real-time translation? Suuuuure! I mean, IBM has only been working to crack that nut for… what? Fifty years? Sometime in the first quarter of 2011. Or maybe second quarterish...

The problem is that there appears to be no further room for real revenue growth.

But wait, what if we get some tape, scissors, glue and boogers and build our own online translation tool? And what if we charge our own translators to use it? And we charge them again for the privilege of getting to be picked for projects (a sure sign that quality is the first priority)? What do you think we can make off of that? Let’s slap some third-party machine translation doohicky and call it the future.
Well, the conference call also contains some numbers to that effect:

…we have about 2,000 users now or probably next year, at the end of the year we’ll have 3,3500 [probably 3,500] users [, so] that’s going well. And then the enterprise side of that, it could be anywhere – each sale to be anywhere from a $100,000 to $400,000, $500,000, that’s on translation workspace.

I can’t hazard any guesses as to how many enterprises will shell out half a million bucks for a translation memory tool with IBM’s machine translation dinosaur grafted on it. But I can hazard some guesses as to the revenue from individuals. Cowan states that “we have about 2,000 users now or probably next year”. To which I would say: “Dude, you either have them now or you don’t. You can’t have them now or next year.”

But let’s take his figure of 3,500 victims at face value. Let’s assume the best-case scenario, in which 3,500 people subscribe to Translation Workspace for the full-year freelancer price of $762 a year (much more expensive than all other competitors’ licenses, which don’t last a year but rather go on indefinitely). This would allow subscribers to process 80,000 words per month, which is 3,636 words a day in a month with 22 working days, a credible output for a translator. That comes to $2.67 million a year. This is the most that Lionbridge can tax its individual “vendors” for getting work from it.

That is still not even enough to cover the losses from a single quarter.

And as for enterprises, I can just imagine that small and medium-sized translation companies will be beating down the doors of Lionbridge to use the proprietary technology of a third-class competitor who will have total access to all of the confidential material of their clients.

So, basically, the industry leader is alienating its workforce and bashing its own reputation in the face like Robert De Niro in Goodfellas. And all for less than one percentage point of revenue, at best.
The question really is: Are the only translation scams coming from those shady companies who don’t pay freelancers?

Frankly, I would be very leery of a company whose 2011 business plan relies on the consumption capacity of freelancers. Especially when those freelancers are paid low wages because you yourself pay them low wages. And, yes, Henry Ford wanted to sell Model-Ts to his assembly line workers, but his idea was to pay them enough to buy the damned things.

Some commentators on this sorry episode have said things along the lines: “I wouldn’t work for them. But, hey, that’s the market. You’re free to take it or leave it. That’s capitalism.”

I’m sorry, but that’s not capitalism. That is feudalism.

And those lazy, lice-ridden, peasant-raping, God-fearing, noble landowners got thrown in the dustbin of history when people in cities and towns started inventing neat capitalist stuff like clocks and fractional reserve banking.

On whither side of the city walls art thou, my 21st century techno-peasant?


Miguel Llorens is a freelance financial translator based in Madrid who works from Spanish into English. He is specialized in equity research, economics, accounting, and investment strategy. He has worked as a translator for Goldman Sachs, the US Government's Open Source Center and H.B.O. International, as well as many small-and-medium-sized brokerages and asset management companies operating in Spain. To contact him, visit his website and write to the address listed there. Feel free to join his LinkedIn network or to follow him on Twitter.