RORY COWAN - LIONBRIDGE TECHNOLOGIES - (LIOX)
CEO Interview - published 06/15/00

DOCUMENT # KAD248

RORY COWAN founded Lionbridge Technologies in 1996 as a management buy-out of the Language Solutions business of Stream International. Prior to founding Lionbridge, Mr. Cowan was interim Chief Executive Officer of Interleaf, Inc., a document automation software service. From 1995 to 1996, Mr. Cowan was Chief Executive Officer of Stream International, Inc., a division of R. R. Donnelley & Sons. In addition to his responsibility at Stream, Mr. Cowan was an Executive Vice President and member of the Management Committee for R.R. Donnelley. From 1991 to 1994, Mr. Cowan was responsible for Asian business development and led Donnelley’s Information Resources Sector, consisting of all information technology and communications businesses, Metromail Corporation, as well as the Networked Services Sector, consisting of the Book, Documentation Services, and Financial business units. Mr. Cowan joined R.R. Donnelley in 1988 as Senior Vice President of the Documentation Services Group, and later became Group President. Prior to Donnelley, Mr. Cowan was President and Chief Executive Officer, CSA Press of Hudson, MA. Mr. Cowan also held positions at Compugraphic Corporation, in Wilmington, MA, and London, England. Rory Cowan is Chairman of the Board of Directors of NewsEdge Corporation, and is a member of the Board of Directors of IntegrationWare, Inc. Mr. Cowan was a member of the Board of Directors of WebLine Communications from September 1997 until its acquisition by Cisco Systems in September 1999. Mr. Cowan was also Chairman of the Board of Interleaf, Inc., from July 1996 until its acquisition by Broadvision, Inc. in January 2000. Mr. Cowan received his Master’s degree in Business Administration from Harvard University in 1981.

Sector: INTERNET SERVICES

TWST: Would you care to provide some background information on Lionbridge Technologies?

Mr. Cowan: Lionbridge is a company which focuses on multilingual Internet services. In effect, we maintain multilingual databases for the Internet industry, and we offer these services around four distinct section score business processes. The e-release world, as products are now moving from an episodic physical release to a sort of serial hosted applications model; to the e-support world, as people are finding that technical support is further augmented by online Internet-oriented support in multiple languages; to the e-learning world, as people leave the classroom and go online in multiple languages; and also to the e-commerce world, as people begin to realize that for a globally integrated supply chain, you need multiple languages.

TWST: Do you provide services to the classroom?

Mr. Cowan: Absolutely. What we do is anyone who is developing for example — Cisco is a great example. Cisco is of course, putting the big focus on using the Internet as a new learning platform. We maintain many of their global Networking Academy courses in multiple languages for them so that the curricula they have are always the most up-to-date courses available for use anywhere around the world in the local languages of their students.

TWST: What do you see as the more significant developments in your field over the next few years?

Mr. Cowan: Well, I think there are a couple of things happening. First, this is not a business about just tools. There is no silver bullet technology. So to maintain these databases in multiple languages, you need a combination of language management technologies, a global infrastructure, as well as a reusable knowledge base. Lionbridge has developed some international work flow tools, as well as some language management tools, which enhance the quality and the velocity of this process. We also have about 1,000 people in 16 locations in 10 or 11 countries. So we have this global infrastructure in all the business hubs around the world. And lastly, we maintain an internal knowledge base so that all of our project managers, translators and engineers can share their knowledge about a particular client’s application or a particular client’s business focus.

TWST: Which countries are you in?

Mr. Cowan: We are based in the United States, and we have facilities in Ireland, France, Holland, Germany, China (we’re the largest e-builder in China, by far), Korea, Japan, Taiwan, Brazil, and Canada.

TWST: Do you have programs in all of those languages?

Mr. Cowan: We do. Remember, we’re a services technology company. So think of us as being similar to an e-builder where someone will come to us with a unique problem. For example, if someone wants to be able to offer my knowledge base in a local language to reduce the amount of technical support phone calls I’m getting at my call centers. This is what we did for IBM, for example. We’re now maintaining their ThinkPad Technical Support Site in seven languages simultaneously so that end users in France can enjoy the same high quality of Web-based technical support that the users in America have.

TWST: Will your R&D expenditures reflect language management, for example?

Mr. Cowan: Absolutely. We have just recently acquired a company called INTL.com, and we have merged our R&D groups. We have developed a combined offering which really, we think,we believe will increase the velocity and reduce the cost of maintaining your Websites in multiple languages simultaneously.

TWST: What would you consider the greatest opportunity for Lionbridge over the next few years?

Mr. Cowan: I think there are a number of areas. I think that most of them are in the online technical support, the e-learning and the e-commerce area. In the technical support area, of course, a telephone call can cost $15-$20 per resolved incident. But there are new statistics coming out now that if you could have that same incident resolved online, it’s $2-$3 per resolved incident. So that’s a 10x cost savings which we can offer our customers for their overseas operations. In the e-learning world, stats are there is data coming out that people are expecting to save 60%-70% on hard skills training versus classroom participation. So instead of flying an instructor to Germany to hold a classroom, to hold a hard skills training session in a classroom, you can now do that over the Net at savings at 60% or 70%. And in the B2B e-commerce space, when you have all these business exchanges happening, clearly, there is a global supply chain. Within a global supply chain, global means local language. So we are then able to, by helping people maintain their sites in local languages, we’re helping them in increasing the number of suppliers, and increasing the velocity of clear communications.

TWST: What do you see as your competitive advantages?

Mr. Cowan: I think there are three traditional approaches to this business. One is, just the first is a traditional translation company approach — and we’re finding that given the increased technology, the increased scale of these projects, and the real-time nature of these projects, traditional translation firms are just noncompetitive. The second is the tools industry company approach. There are a number of tools available. Wrappers around Websites for change management detection, or sort of one-off language management tools. But these traditionally are small and consumer-oriented and don’t have the industrial strength capabilities that we focus on. So I think the tools business is something of interest, but certainly not solving the problem. Then the last one, of course, the third approach is the idea of just traditional e-services or e-builders companies. They’ve got quite a lot of experience in doing e-enabling domestic applications in the US, but once they hit the complexities of the multilingual world, they tend to stub their toes. So what we’re finding is that our competitive advantage is a combination of technology, infrastructure and knowledge to take US sites and maintain them in multiple languages.

TWST: Are there any major concerns or risks that Lionbridge faces?

Mr. Cowan: I think that the big issue is the organizational re-engineering on the client side that goes over with this process. Traditionally, the point of paying pain is felt here in the United States for cost reductions and benefits. Given that this is the English language, most everything is developed in English outbound. And yet, the cost restructuring has to happen in the overseas subsidiaries. So we’re finding that the really successful companies are looking at this as an opportunity to re-engineer their global release and maintenance process. So companies that are unwilling or not ready to take that difficult step will not enjoy the benefits of our system.

TWST: What do you see as opportunities for improvement in Lionbridge?

Mr. Cowan: I think that in 2001, we’re going to see the first release of a fully-integrated global work flow system, which will take further time and cost out of the process. For example, in the second half of this year, we’re working with a number of banks to maintain their research nodes in multiple languages and nearly simultaneous release because, of course, now with the advent of 7 x 24 global trading, everybody who wants to buy US equities doesn’t speak English, and everybody who wants to buy Japanese equities doesn’t speak Japanese. So this is an application at the next level of our skill set.

TWST: So will you be much more involved with banks.

Mr. Cowan: Absolutely. Listen, as the financial market goes global, firms expand globally, we are helping them take time and cost out of their systems.

TWST: What is your goal in terms of market position and growth?

Mr. Cowan: I’ve run a number of companies and I feel comfortable running companies that are in that sort of repeatable 30% per year organic growth level. You’ll continue to see some smaller, niche acquisitions from us to acquire some unique technologies or some unique skills. But I think you’ll find that repeatable growth rates in the low to mid-30s are not unrealistic.

TWST: And what do you see as the rate of gain in sales and earnings in the next couple of years?

Mr. Cowan: I think you’re going to see — well, clearly, I can’t forecast earnings because our analysts have to give some guidance, but you’re seeing that we are comfortable with the move toward cash flow break-even during the second half of this year. And as you’ve seen from our first quarter results, we’ve just had stupendous sales activities. So we’re feeling very comfortable with analyst estimates.

TWST: Any thoughts on your stock price?

Mr. Cowan: Well, every CEO thinks his stock is undervalued. I mean, that’s the human condition! But I think we’re very fortunate in that with this reassessment of valuations, we are still above our IPO price of last summer by about 20%. I also think that if you look at our peers, that would be all of the e-builders in the world, I think that we’re significantly undervalued compared to our peer group. Now the reason I think we are undervalued is that American investors, traditionally, have not appreciated the complexity of releasing and maintaining products outside of the US and of all the traditional infrastructure activities that go along with running a company outside of the US. I think in the second half of this year, those investors that rewarded the e-builders with their strong stock prices will look at our performance and our growth rates and better understand the challenges and solutions that we provide for international applications.

TWST: Is e-builders a growing trend?

Mr. Cowan: Well, an e-builder or an I-builder — that’s a generic term for the services guy. These are like the Sapients, like Viants, like the Razorfishes. This is a group that is using this transition from a client-server architecture to an Internet architecture to wrap a series of strategically-oriented Internet engineering services to customers.

TWST: Where would you say you generate most of your sales?

Mr. Cowan: We’re pretty evenly split between outside of the US and in the US, but we’re about 60% international and about 40% domestically. We are finding significant growth in China as we have about 60 full-time employees in Beijing working on developing and maintaining portals for both Chinese corporations and also the Chinese joint ventures of US and European companies.

TWST: It must be a real challenge.

Mr. Cowan: Well, managing a global company globally is a challenge. But the wonderful thing about the Internet is — I’ve done enough of these and you wouldn’t think of us as being a global company at a $50 or $60 million run rate because the cost of being global would far outweigh its value. But the Internet that it has allowed us to drive costs out of our own internal operating systems, while at the same time, it’s the exact phenomenon that’s creating the demand for our services.

TWST: You mentioned Germany. Is there a big demand in Germany?

Mr. Cowan: Germany is, of course, the largest European economy. It seems as if Germany has come a little bit late to the Internet party. Having said that, though, we maintain an extraordinary multilingual support center in Germany where we actually take e-mails in multiple languages, translate them in real-time after searching local language knowledge bases, and then submit those to build target language knowledge bases. So while we’re providing technical support, at the same time we’re creating knowledge bases in local languages.

TWST: What reasons would you give potential long-term investors to invest in Lionbridge?

Mr. Cowan: Yes, I guess there are a couple of reasons. First, like all technology, most technology distribution ends up with about one-third in the United States and two-third outside the United States. The year 2000 is the first year in which there are more users using the Internet who do not speak English than do speak English, so that’s point number one — we have a proven technology transition. Second is the value we bring to our customers as they move from their traditional methods of supporting, selling and releasing products to an Internet-enabled process. We bring cost savings of 7:1 or 10:1 for our customers, and that sort of value cannot go unrecognized. I think thirdly, we now have our international build-up expenses behind us, given that we are now in 16 locations in 10 or 11 countries, which means that we are now leveraging our fixed infrastructure expense. So I have confidence that our profitability metrics will meet or exceed investment analyst expectations.

TWST: Thank you.

RORY COWAN
Chairman & CEO
Lionbridge Technologies
950 Winter Street
Suite 4300
Waltham, MA 02451
(781) 434-6000
(781) 434-6034 - FAX

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