So SDL is buying Idiom.

SDL has posted an FAQ page about the deal here — but the list is absent a question I recently posed:

Does this acquisition mark the beginning of the end of SDL being a translation services provider?

I think it does. Or, at least, I think it should.

I haven’t received an official answer from SDL to this question. My guess is that SDL will say that it has many clients who want a full-service solution and that it will continue to offer these customers a full-service solution.

Nevertheless, SDL is much more of a software company these days than a translation services company. SDL has been gobbling up software companies over the past year and now owns some of the best translation workflow and content management tools on the planet, most notably Tridion and now Idiom. At some point it will have to ask if the benefits of providing translation services are outweighed by the negatives, which become more acute with the Idiom acquisition.

Idiom, as many folks in the industry know, had been living on borrowed time for quite some time. It was subsidized by the investment community going back 10 years. These investors wanted a return on their investment and Idiom needed a buyer who could give it a larger infrastructure and sales team.

Early last year, I heard from two up-and-coming translation agencies that were taking a hard look at buying Idiom. That SDL would buy Idiom can be viewed as much as a defensive move as an offensive move. And I think the timing is good because Idiom finally hit its stride in 2007.

I attended the Idiom Summit in 2007 and there was a real sense of excitement and optimism in the air. I wrote about the company in October, noting two developments in particular:

The “Full-Service” vs. “Freedom of Choice” Divide Widens
Idiom has been steadily positioning itself against SDL. Where SDL may call itself a “full service” solution, Idiom calls itself a “freedom of choice” solution. That is, SDL can provide you with CMS software, translation memory (TM) software, and actual translation services.

Idiom, on the other hand, provides only globalization management software, leaving the client free to select translators (or translation agency), CMS tools providers, and so on. Some clients may want to stick with separate vendors for different products and services — which benefits Idiom — while others may want a full-service SDL solution. This positioning makes good sense because it makes things clearer for clients who are often very confused by the array of products and terminology.

Demand for On-Demand Growing
Idiom thought that its On-Demand software would appeal mainly to small customers, but a number of large customers are now using it, such as Bank of America and HP’s internal translation group.

One interesting reason that Web-based software has been popular with some companies is that you don’t need to dedicate an IT team to getting started. Ironically, we have found that marketing executives in large companies with very skilled IT departments often feel as if they have very limited IT support because they must “take a number.” The Web-based solution allows a marketing team to bypass IT almost entirely. Even if they want to buy the software, they can use on-demand as a run-up to it. Idiom reports that 50% of its sales pipeline is devoted to Idiom On-Demand.

What happens when a “full service” company buys a “freedom of choice” company?
Right now, SDL says that Idiom is going to remain an autonomous company. And I suspect that many Idiom clients won’t particularly care if SDL is the new parent — and may actually be quite happy to get translation services from SDL.

But what about Idiom’s very popular “LSP Advantage Program” — in which it basically gave away its software to a large network of translation agencies. These agencies had played an important role in Idiom’s growth, functioning as a channel sales partner.

I spoke to the owner of a smaller translation agency — and Idiom partner — last year and mentioned that there was talk about Idiom being acquired by a larger translation agency. He was not at all happy to hear this. It’s safe to say that none of these translation agencies are happy with SDL owning their workflow software.

I’m not surprised to see this press release from across Systems today. Thebigword is promoting an alternative to Idiom as well. Meanwhile, Translations.com is marketing a “safe passage program” for clients who want to migrate away from SDL/Idiom.

SDL surely expected this reaction from its competitors. And all this confusion could actually help SDL sell more translation services as the smaller agencies find themselves migrating to new software tools. At a minimum, the next year promises to be very chaotic in the mid-tier of the services market, which could bode well for the leaders, which includes Lionbridge.

I believe that Idiom is an excellent acquisition for SDL, provided that SDL can hold onto Idiom’s network of supportive and enthusiastic translation agencies. If not, SDL risks giving rise (and momentum) to a “son of Idiom” in the years ahead.

I think SDL would be best served to focus fully on software — on streamlining its large and complex portfolio — and in letting the translation services vendors do what they do best. A SDL Services spin-off would make sense as well.

Perhaps SDL is already planning this. I hope to hear more from them in the days ahead and will keep you posted as I do.