Conference report: Unbabel annual conference 2018

In January 2018, Unbabel closed a USD 23 million ‘Series B’ funding round from M12, formerly Microsoft Ventures. This brought their total investment to USD 31.2 million, making Unbabel the 3rd-most funded tech startup in the language space. The team vowed to disrupt the industry and become “the world’s language layer.” To see the progress towards this goal, Nimdzi Insights has travelled to Lisbon where Unbabel held their first annual event.

Unveiling a larger team, new management, support for video, and marketing content

Founded by Vasco Pedro, João Graça, Hugo Silva, Bruno Prezado, and Sofia Pessanha, Unbabel celebrated their fifth anniversary this year. The company also staged their first annual show in Lisbon’s Champalimaud Center for the Unknown — a fantastic “instagrammable” venue directly out of a sci-fi movie.

The program launched with both client and partner-led panel discussions featuring representatives from brand name and “unicorn” companies, including:

  • Convergys
  • Farfetch
  • Zomato
  • Soundcloud
  • GoCardless, and;
  • LivingLens

The content focused on global support and user experience challenges. Since startups go to market in 7-10 countries a year, they have to scale up customer service for the task. The aim for most startups is to promote customer self-service and move from voice calls to chats and email. Those can be automated and run from a single location. For example, at SoundCloud, 10 customer service engineers support 70,000 users and can pull this off because two thirds of users “self-serve.”

The second part of the show unleashed a marketing narrative on primed crowds. Unbabel CEO, Vasco Pedro, introduced the company’s new senior management – Chief Commercial Officer, Wolfgang Allisat, Operations Chief, Carmen Carey, and VP of Engineering, Marcelo Lebre – who were hired from outside the industry primarily from IT firms.

Unbabel unveiled products such as a subtitling/transcription service (“Unbabel for Video”), a new customer dashboard, as well as plans to expand into marketing content via CMS integrations including WordPress, MailChimp, Hubspot, Typeform, and AEM.

The new team was the single-most important highlight that Unbabel’s founders showed off. Post-funding, they went through a recruitment spree, growing the company from 25 to 127 people in six months. The new team is predominately young, multicultural and energetic, and infused with a startup subculture. This includes displays of enthusiasm that are hard to find in more seasoned crowds. They offer branded clothes and apparel, joint celebrations of weird holidays such as Thanksgiving in Portugal (with Singapore and Latvian employees), group surfing every  Thursday, offices with friendly animals and fancy coffee machines, and a huge writing board wall with strategy and Kanban tasks – anything for team spirit!

With a strong engineering and AI research crew, a sales/marketing unit of more than 40 people, partners such as M12 ready to promote the company’s offering through Microsoft’s archipelago of companies, and 40,000-salesperson network, Unbabel may become a force to be reckoned with in the language industry. But do they have what it takes to pull the market away from the traditional translation giants?

A New Player with the Platform Model

As a core service, Unbabel provides fast translations with good enough quality – emails, chat, and support tickets have a turnaround of 5 to 20 minutes. In the background, there is trained machine translation that is post-edited by bilinguals (not professional translators) and a highly automated workflow. On the client side, the service is deeply integrated into systems such as Zendesk.

The offering is well packaged as an enterprise cost cutter and growth enabler. In plain words, with fast translations, support agents can reply to clients in Germany, France, and Sweden out of centers of excellence in Thailand, Ukraine, or India. And the cost is not likely to exceed 20 percent of what it would take to build a local presence in each Western European country.

Despite these attractive enhancements however, Unbabel is not offering anything too different from what other platform companies are offering. And while some platforms are individually successful, they do not succeed in disrupting the industry as a whole — at least not yet. The leading next-generation translation companies, such as One Hour Translations, Translated.net, Gengo, Lingo24, TextMaster, Tolingo, and a few others amount collectively to less USD 100 million in revenue. They grow at a brisk pace, but not exponentially. At the same time, traditional translation giants collectively add hundreds of millions in annual revenue. For instance, TransPerfect may achieve growth of 20 percent this year on a portfolio of USD 615 million.

In the fight of new versus old, of next-gen language companies versus the old translation giants, the new are not necessarily winning. Unbabel will need to invent something to change the status quo.

A Door-Opening Strategy

One of Unbabel’s key advantages is that they can sell to enterprises that already have a translation partner. For example, one of their clients is a video game company called King.com that localizes their games with one set of vendors but outsources support email translations to Unbabel. Another advantage is the high margins achieved through fixed per-unit pricing (per email or ticket, and not per word), as well as leverage of trained MT/TM.

A drawback of the current product offering is that Unbabel might find it difficult to scale within their enterprise accounts – they will only cover a portion of the budget. For example, GoCardless, a client of Unbabel, uses a separate process with Smartling as a TMS for their website. Moreover, MT with post-editing by bilinguals and not by professional translators might prove insufficient for legal, mission-critical marketing, and highly specialized technical content — exactly the type of work where traditional providers make their millions.

Another area of concern is Unbabel’s approach which doesn’t integrate well into the centralized setup run by localization engineers. A company using multiple technologies and vendors might end up with language data silos. Therefore, the company will often need to sell one level higher than the localization service.

The pressure of being the third-most funded startup in the industry

An investment of USD 23 million sets high financial performance and market presence expectations. While neither M12 nor Unbabel reveals the current valuation of the company, we can expect the investors to look forward to returns in the next 3 — 5 years via the next investment round. At this point the company’s market valuation needs to be significantly higher than it is today.

Rank Company Investment USD Main offering Status
1 Smartling 63.1 million Tools Est revenue more than $30 million
2 Idiom Technologies 60.0 million Tools Sold to SDL at $21.7 million
3 Unbabel 31.2 million Services Recently funded
4 Cloudwords 14.4 million Tools Est revenue around $5 million
5 One Hour Translation $10 million Services Est revenue $25 million
6 Qordoba $10 million Tools N/A

Sources: Crunchbase, CSA, Nimdzi Insights

With a grown team as well as increasing sales and infrastructure costs, it’s unlikely that Unbabel would go for the market capitalization model based on profitability. Even the best of the best translation companies are valued roughly at 10x EBITDA only. Positioned as an SaaS and an AI company that strives to become the world’s language layer, Unbabel can capture investor imagination in a better way.

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