-----Original Message-----
From: Mark Homnack
Sent: Thursday, May 23, 2002 8:21 AM
To: Account Managers (Worldwide)
Cc: Managers (Worldwide); SIG - Trados/Tools
Subject: FW: TRADOS and Uniscape to Merge
 
Team:

Most of you are now aware of this merger. We have been hearing rumors about this merger for weeks, just as we are now hearing that other globalization companies are now looking hastily for a take-out partner.
 
This merger should not come as a surprise since we have heard that both companies are struggling, not increasing their revenue and depleting their savings; no doubt the owners (i.e., investors) feel that their combined chances for survival are better when merged. However, in my mind, this merger makes as much sense as the blind marrying the deaf: it is doubtful if the couple’s chances of survival will be improved through marriage; however, the old adage of “suffering likes companionship” seems to apply.
 
As some of you are aware…. at a LISA conference in San Jose at the end of 2000, I was invited to speak on a panel about the topic of Globalization Technology. My presentation, that the audience received with much applause (i.e., one of the rare signs of life at LISA that day), was entitled, “The Future of Globalization Technology: Is it the Graveyard?”
 
On the panel, I made the then-controversial prediction that, “within two years, half of the companies on the panel would be gone” (as stand-alone players). The exact words of my presentation, that you can read on our website, were, “In two years, 50% of all VC-backed and public localization companies will be gone.” Three of the companies on the panel were Uniscape, Trados and AlpNet. All three of these companies are “gone” now, merged or sold into other companies.
 
By the end of the year, I expect more globalization technology companies to fold (be merged, sold, closed). Not only is this entire sector suffering, the Uniscape-Trados merger will force the competitors (such as Convey, GlobalSight, Idiom, and WorldPoint) to re-evaluate their future. Investors will begin to shop their companies more ardently, thinking, “This merger shows that we are not the only ones suffering. This entire sector is rotten, and we’re never going to get rich. How many tens of millions have we wasted, throwing good money after bad, hitting our heads against the wall but not sensing the pain? Let’s sell out now before it’s too late.”

In other words, Uniscape’s decision could start a domino effect among the Globalization Technology companies, that had hoped that their “technology story” would be believed. Not only will other investors bail, potential customers will hardly be motivated to buy $500K of product from a company that may very well be gone by the end of year. Certainly, some customers should interpret this merger as proof that the Globalization Technology companies cannot survive (“this strange merger confirms that these companies never had a solid business case, and are just another variation of the dot-bomb song”).
 
Harder for me to assess now is how Trados will change. Will it become a more explicit competitor, extending Trados.NET through Uniscape? Will it eventually be sold, to the likes of Bowne or SDL, when the Trados executives realize that this merger doesn’t change the business fundamentals?
 
While I do not expect this merger to change much in the foreseeable future, it does suggest that Trados will go through more changes in the next few years, that probably will not help us. I have always respected Trados deeply, since no other globalization technology company has contributed as meaningfully to our industry, and I am now sad that they are diluting their focus.

I do not understand fully Trados’s reasons for merging, which appears essentially to be an acquisition of Uniscape’s technology, since Trados surely had much more market clout and momentum than Uniscape. Clearly, Trados’s hopes of going public in the 2001-2002 timeframe were dashed, which must have taken the heart (i.e., liquidity hopes) out of the executives and investors. Their product is mature, the market is highly saturated, and their customer base will be hard pressed to spend more money on Trados, especially during these hard economic times. Trados’s future must have appeared vague to the investors, prompting them to try something radical if not desperate.

Trados no doubt hopes that Uniscape will breathe new life into its future, creating a broader technology foundation, while at the same time realizing that this merger will alienate some of its larger (vendor) customers. With Uniscape’s technology and services, Trados might think it can now more easily provide a complete localization solution to prospective customers. However, it is doubtful if customers will subscribe to this solution, since large localization customers do not believe that Trados, also through Uniscape, has the service offerings and experience to undertake complex localization projects. To use an analogy: if a customer uses and admires Adobe’s FrameMaker, would this same customer find it reasonable to ask Adobe to write its documents?

Uniscape had some very bright and industrious people, but they never succeeded (or were given a chance by their investors to succeed) as a localization-service provider. Even though SimulTrans and Uniscape are just a few miles apart, I have never heard of a customer in the past three years choosing Uniscape as a localization solution.

The press release notes that “Uniscape [is] a recognized leader in enterprise globalization management software.” What does this mean? How makes a “leader” in this sector? How many significant implementations of “enterprise globalization management software” have been sold by the 4-5 pure-play globalization-technology companies? The facts of the matter are: if $130 or so million had not been invested in these companies in the past years, they would have never seen the light of day, since sales have been abysmal for all the companies and there is no true market for their “solutions.” IDC might advertise that the market for globalization applications is huge and growing, but I wonder who still believes (and pays for) IDC’s reports?

In other words, if Trados now thinks that its brand on Uniscape’s product offerings will cause Uniscape’s products to jump off the shelf, Trados should think again.

I feel somewhat badly for the founders, investors and employees of these companies. They worked hard, putting their lives on the line, to make their companies succeed. With all the dot-com rags-to-riches stories being told in their peer groups, they too had hopes of getting rich quick. Now they will not get rich through this business idea, realizing that their original dreams have faded like the value of their stock options (and preferred, common and founders’ stock). However, these founders and employees are not alone. Many thousands of people feel badly about how things have turned out, in the technology sector this past year.
Mark