Rosetta Stone 2009 Annual Report Download - page 5

Table of Contents
PART I
Item 1. Business
Overview
We are a leading provider of technology-based language learning solutions. We develop, market and sell language learning solutions consisting of
software, online services and audio practice tools primarily under our Rosetta Stone brand. Our teaching method, which we call Dynamic Immersion, is
designed to leverage the innate, natural language learning ability that children use to learn their native language. Our courses are based on our proprietary
interactive technologies and pedagogical content, and utilize a sophisticated sequencing of images, text and sounds to teach a new language without
translation or grammar explanation. We believe our award-winning solutions provide an effective, convenient and fun way to learn languages. We currently
offer our self-study language learning solutions in 31 languages. Our customers include individuals, educational institutions, armed forces, government
agencies and corporations.
People throughout the world seek to learn foreign languages for a variety of reasons, including to learn about other cultures, to communicate with friends
and family, to enhance their career prospects, to travel internationally and to obtain personal enjoyment and enrichment. According to a December 2007
industry analysis we commissioned from The Nielsen Company, a market research firm, which we refer to as the Nielsen survey, the language learning
industry worldwide represented over $83 billion in consumer spending in 2007, of which more than $32 billion was for self-study. According to the Nielsen
survey, the language learning industry in the United States, where we generated 92% of our revenue in 2009, represented over $5 billion in consumer
spending in 2007, of which over $2 billion was for self-study.
The strength and breadth of our solutions have allowed us to develop a business model that we believe distinguishes us from other language learning
companies. Our scalable technology platform and our proprietary content can be deployed across many languages. This has enabled us to cost-effectively
develop a broad product portfolio. We have a multi-channel marketing and distribution strategy that directly targets customers, utilizing print, online,
television and radio advertising, public relations initiatives and our branded kiosks. Approximately 82% of our revenue in 2009 was generated through our
direct sales channels, which include our call centers, websites, institutional sales force and kiosks. We also distribute our solutions through select retailers
such as Amazon.com, Apple, Barnes & Noble, Office Depot and Borders. According to an August 2008 survey we commissioned from Global Market
Insite Inc., or GMI, a market research services firm, which we refer to as the GMI survey, Rosetta Stone is the most recognized language learning brand in the
United States. Additionally, of those surveyed who had an opinion of our brand, over 80% associated it with high quality and effective products and services
for teaching foreign languages. January and February 2009 internal studies showed aided brand awareness for Rosetta Stone in the US was approximately
74-79%, based on general population surveys and confirmed that Rosetta Stone is the most recognized language learning brand in the United States.
We grew our revenue from $25.4 million in 2004 to $252.3 million in 2009, representing a 58% compound annual growth rate.
Our Industry
Market Size. According to the Nielsen survey, the worldwide language learning industry represented more than $83 billion in consumer spending in
2007, of which more than $32 billion was for self-study. The Nielsen survey also estimated that the language learning industry in the United States, where we
generated 92% of our revenue in 2009, represented more than $5 billion in consumer spending in 2007, of which more than $2 billion was for self-study. In a
more recent study in 2009 we
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