Rosetta Stone 2010 Annual Report Download - page 16

Table of Contents
Institutional
Institutional sales accounted for approximately 21% of our revenue for the year ended December 31, 2010. Our institutional distribution model is focused
on targeted sales activity primarily through a direct sales force in four markets: schools, colleges and universities; the U.S. armed forces and federal
government agencies; corporations; and not-for-profit organizations. Regional sales managers are responsible for sales of our solutions in their territories and
supervise account managers who are responsible for maintaining our customer base.
Educational Institutions. These customers include primary and secondary schools and represented approximately 51% of our institutional revenue for
the year ended December 31, 2010. In our experience, colleges, universities and schools frequently rely on references from peer institutions and an official
request-for-proposal, or RFP, process when selecting a vendor. We generate sales leads from sources such as visiting potential customer sites to provide
briefings on our solutions and the industry, interacting with attendees at trade shows and conferences, responding to inbound calls based on recommendations
from existing customers and monitoring and responding to RFPs.
Federal Government Agencies and Armed Forces, Not-for-Profit. These customers include governmental agencies and armed forces and organizations
developing workforces to serve non-native speaking populations, offering literacy programs and preparing members for overseas missions and accounted for
approximately 28% of our institutional revenue for the year ended December 31, 2010. Many customers in this market license our products through online
subscriptions. We have recently been adding sales representatives to this group to allow greater focus by senior sales executives on expanding some of our
key relationships.
Corporations. We promote interest in this market with onsite visits, trade show and seminar attendance, speaking engagements and direct mailings.
Many of our customers in the market prefer online subscription delivery. Corporations represented 21% of our institutional revenue for the year ended
December 31, 2010.
International
International sales accounted for approximately 18% of our revenue for the year ended December 31, 2010. In the near term, our international activity is
primarily focused on successfully growing our business in the United Kingdom, Germany, South Korea and Japan, where we are utilizing many of the same
direct-to-consumer and channel strategies that we developed in the domestic market. We opened our United Kingdom office in 2005, our Japan office in
2007, our Korea office in 2009, and our Germany office in 2010. Over time, we believe that we will be able to develop a similar business model in other
markets in Europe, Asia and Latin America.
Product Development
Our product portfolio is a result of significant investment in product development over 18 years. Our product development focuses on both software and
content development. Our development efforts include both creating new solutions and adding new languages to existing solutions. Our development team
has specific expertise in speech recognition, interface design, immersion learning and instructional design.
Our research and development expenses were $23.4 million in the year ended December 31, 2010.
Sourcing and Fulfillment
Our strategy is to maintain a flexible, diversified and low-cost manufacturing base. We use third-party contract manufacturers and suppliers to obtain
substantially all our product and packaging components and to manufacture finished products. We believe that we have good relationships with our
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