Moore’s Law and Commoditization (of Translation too)

Buy Low, Sell HighMoore’s law offers a simple explanation for the unceasing decrease of actual price and capabilities of digital electronic devices. Although it is not a natural law, it commonly drives long-term planning and sets goals for research and development.

Moore’s law describes the driving force of the technological change that has taken place in the last 75 years.

The exponential improvement of digital electronic devices has dramatically enhanced their impact on nearly every segment of the world economy.

Moore’s law often goes together with Peter Drucker’s postulate stating that a tenfold increase in the productivity of any technology results in economic discontinuity.

In Race Against the Machine, Erik Brynjolfsson and Andrew McAfee argue that “The computer, like all general purpose technologies, requires parallel innovation in business models, organizational processes structures, institutions, and skills.” They cite studies showing that the increase in the relative demand for skilled labor is closely linked to the progress of technology, especially digital technologies, and accept as true a ‘skill-biased technological change’ (SBTC).

Nevertheless, Brynjolfsson and McAfee also argue that there is a growing discrepancy between the rapid advancement of digital technologies and the slow transformation of human beings, and that digital technologies are changing rapidly, but organizations and skills cannot keep up.

Common Sense Advisory’s Hélène Pielmeier is then perfectly right when writing that most LSP’s are not as innovative as they claim, and that they will become obsolete if they do not respond more aggressively to market challenges and changing client needs.

Unfortunately, Moore’s law, especially in its interpretation as a technology business driver, is a major cause in commoditization of technology, which, in turn, contributes to commoditization of all related goods and services.

This is the first reason why most LSP’s are competing on price only, and show little or no interest in process innovation. At best, they are just using (basic) technology.

For SBTC to be effective, a shift in educational programs is necessary from LSP’s too who should promote new models and stop complaining while merely stating their expectations, which are doomed to remain unfulfilled without their direct involvement. LSP’s should reconsider their notion of the perfect candidate and help shaping new business models and professionals who can grow into them.

Also, if innovation were about offering useful services that clients are willing to pay for, Brynjolfsson and McAfee would be right when arguing that, in many markets, consumers are willing to pay more for the best option. Then, if technology exists to replicate at low cost certain services, the supplier who is able to ensure the highest quality can win the majority of the market, if not all the market. The supplier coming in second will probably be almost as good, but will receive only a small part of the revenues.

Unfortunately, the competition on price and the downward pressure on compensations tell us that LSP’s could never succeed in changing an age-old model of business, simply because the core task is essentially unchangeable. LPS’s have remained anchored to the same old value propositions because these are the only ones they know.

So welcome to the stark reality of the translation industry, Ms. Pielmeier, you are in good company. There are people who have been advocating the same change for decades.

Do you really expect players who play downward to disrupt the market simply by making use of a little rough, unstable and yet already obsolete technology? Is Common Sense Advisory really seeing “aggressive LSP’s questioning basic concepts such as who to serve, whether to let buyers self-serve, and what quality levels to offer?” Is there any LSP out there showing true innovation? Should there be a handful, it should be easy to list some. Not only are the people in the translation industry curious, they are eager to know and learn from innovators.

Ms Pielmeier comes from a company that since the beginning has been championing the traditional, same old business model of buying low and selling high, without introducing any disruptive innovation.

Is there any innovation in emailing early in the morning on Sundays to quest a translator and a proofreader willing to sacrifice their rest day to process 995 gold/repeats, 1163 fuzzy, and 3116 new words for US $ 203,00 (€ 146,12) for translation and US $70,00 (€ 50,38) for proof including approximately € 15,00 (US $ 21,00) of banking fees?

Does this create any new market or value? It eventually disrupts the existing market and value network, without displacing any earlier technology yet.

Is sending out mass emails to find a professional translator for a job a new business model? It is rather like launching a fishhook for marlins and being ready to settle for sardines, relying on inexperienced, ill-informed, unknowing, or simply cunning customers, thus perpetuating the typical information asymmetry and the Gresham’s law for the industry.

Chasing hi-tech companies as translation customers carries an inherent commoditization risk. These companies offer large volumes of work, but have relatively limited budgets. Their expenditure capacity is misleading and does not guarantee high profit margins. These margins are further eroded by price competition.

This is why the general concern about commoditization and downward pricing pressures in the industry are wrongly targeted. Commoditization is helped, when not caused, by undifferentiated offer. When customers perceive no difference in services, they will make price a differentiator. The increasing competition and falling prices derive from LSP’s who are incapable of properly using technology to win hi-tech customers with agile solutions and cannot think of anything else than resorting to the typical age-old business model of buying low and selling high, transferring losses on vendors.

This method could sound old, definitely not original, or creative, it could not guarantee best quality and finest results, but it is really quite simple and offers a secure way to thrive.

In this respect, the largely prevalent approach in the language industry consists of quickly assembling teams and tools to get a job done as it comes in. This tells us why the most important novelty for LSP’s in the last few years has been vendor databases. They are primary, headache-saving tools to collect data from vendors and have them automatically compete against each other, based on the rates they charge, while allowing their users to deal with the promise — or illusion — of doing everything in every language.

For the same reason, the other core technology for LSP’s is translation memories. It is a twenty-five-year-old technology and LSP’s seldom know how to handle translation memories. End customers often do not know either. This offers the right to ask vendors for discounts for repetitions, full and fuzzy matches. Probably the discounts will not be passed on to customers, but rather used to recover from price wars with competitors and the consequent margin squeeze.

The much claimed key value added is then in vendor and project management, in some cases in translation management software. This approach makes LSP’s largely interchangeable, thus highly vulnerable to predatory competition.

On the other hand, in another of her articles, Ms Pielmeier refers to a foregone Common Sense Advisory’s report to recall a general complaint that “in a business that is growing rapidly, but sustainably, there just never seems to be enough hours in a day to accomplish everything we need to in a timely manner.” In other words, when growing — or possibly even floating, marketing is a minor task. Can anyone say to be surprised of seeing this industry so largely marginalized? Not surprisingly, again, the real difficulty seems to be using the cheapest marketing channel available (and not the most appropriate).