In the news yesterday, Israeli translation software developer Babylon stock (BBLY.TA) lost about 65% of its value in a single day. In little over a week, the stock lost 75% of its value. The reason? Google and Yahoo, two of Babylon’s largest customers which account for 90% of its revenues, announced that they were terminating/downgrading previous business agreements. As the bottom fell out of Babylon’s revenue generators, investors were running for cover. (Read more here).
Babylon started out in the 1990′s as a developer of translation dictionary software. This was before the days of Google Translate and other online dictionaries. Babylon had a good product and made their money from selling licenses. In 2007, the company was taken over by Noam Lanir, an Israeli entrepreneur who made a fortune in the online gaming industry. Lanir’s company, Empire Online, specialized in driving Internet traffic to online gambling websites. Lanir took Babylon into a new direction and instead of just selling translation software licenses, Babylon started to provide free online translation services and browser toolbars that drove traffic to the major search engines. Babylon started making a lot of money from online advertising and from payouts by the search engines for the online traffic referrals.
Babylon ran into two major problems:
- Babylon’s translation software became an inferior product. Online translation tools by Google and Microsoft are better than Babylon and are totally free. And free online dictionaries like Linguee and bab.la are now offering better solutions than Babylon for translation professionals and lay users alike.
- Babylon’s free toolbars did not offer a good user experience and customers started to complain. Babylon toolbars were very aggressive and took over the client browsers. Babylon was in violation with the terms of service of Yahoo and Google, who terminated their agreements with Babylon as a result.
The following quote from PC Magazine last May says it all:
Babylon Search. If you’re reading this, chances are you’ve got this widely-hated software on your system, and you want it gone. Perhaps you’ve tried uninstalling Babylon already, but it keeps popping up. It’s software that just won’t die.
Is this the end for Babylon? My guess is YES, Babylon is finished. They wasted too much time in digging for gold on the Internet, rather than focus on their bread-and-butter which was translation software. Both Babylon and its investors did not realize that the gold mining rights are owned by Google. And that Google decided to revoke those rights from Babylon.