Reposted from TechFlash: http://www.techflash.com/seattle/2010/09/livemocha_looks_to_crack_rosetta_stone_with_online_language_service.html

John Cook on Monday, September 13, 2010, 9:00pm PDT

With its distinctive yellow-boxed CD-ROM titles available at airports and mall kiosks throughout the U.S., Rosetta Stone has grown into the top seller of language learning software over the past 18 years. The Arlington, Va.-based company is expected to top $265 million in revenue this year, with the bulk of those sales coming from the traditional packaged-software business.

But a 3-year-old online language learning startup believes that Rosetta Stone is vulnerable. Very vulnerable.

Today, Bellevue-based Livemocha is rolling out five new online language programs called Active Courses that essentially poke a stick right in the eye of its much bigger rival. Available for $150, the new online classes mark the first time that Livemocha has attempted to compete head-to-head in the U.S. with Rosetta Stone. They’re also an expansion from the basic Flashcard-based course materials that Livemocha previously offered.

Livemocha will continue to offer a free service for language learners where community members will be able to practice various languages with other members. However, the new Active Courses offering is designed for students, employees or others who want to go deeper and reach fluency in a given language.

Interestingly, Livemocha’s announcement comes on the same day that Rosetta Stone is unveiling the latest version of its online language service. Dubbed TOTALe, Rosetta describes the product as an innovative language-learning solution that combines elements of the company’s software with a new online experience.

“This allows people to ‘awaken’ their natural ability to learn a new language,” the company noted in a press release.

But Michael Schutzler, the former Classmates.com CEO who took over the top job at Livemocha in June, thinks that’s hogwash. In an interview, he called Rosetta’s online community an embarrassment.

“They have a long mountain to climb if they are going to compete against us head-to-head in terms of online language learning, which is what they are trying to pivot over towards,” said Schutzler. “But, again, their price point doesn’t make any sense as far as I am concerned and they really don’t have anything to offer. They don’t have the grammar instruction. They don’t have the detailed role-playing instructions. They don’t have a community to interact with. They basically have an extremely advanced version of flash cards with voice recognition software embedded.”

Schutzler said that Livemocha has a key advantage in that 6.5 million people have already registered with the online community, many of whom take on active roles as discussion leaders or grammar coaches. He also said the price point of $150, which provides access to one year of in-depth course materials, is far cheaper than the $500 to $1,000 that Rosetta charges for an equivalent service.

“It is pretty dramatically different for the average person who wants to learn a language,” said Schutzler when asked about pricing.

Hundreds of hours of new course materials have been added to the Livemocha Active Courses lineup. Much of that content — including role-playing videos — is being provided by Harper Collins. The company also is planning an English as Second Language program for Hispanics, which is being built in conjunction with Pearson.

To date, 90 percent of Livemocha’s members are from a country other than the U.S. and about 98 percent of the revenues originate overseas.

Now, with the in-depth online courses available for Spanish, French, Italian and German, Livemocha is attempting to establish a significant beachhead in the U.S.

“Now that we have served the rest of the world so well for three years, we are in a particularly good position to serve the U.S. marketplace,” said Schutzler. “We have French speakers and Spanish speakers and Italian speakers literally all over the world ready to to partner up with U.S. students who want to learn those languages.”

Founded in 2007 by entrepreneur Shirish Nadkarni, Livemocha raised an $8 million venture round from Maveron and August Capital earlier this year. Schutzler said the 30-person company, which has yet to turn a profit, remains in a strong cash position and doesn’t intend to raise new capital in the near future.