The economic opportunity for software localization

Picking the right languages is a key decision for growth-minded global software enterprises that use the internet as a sales and marketing channel. If they find the right languages, they can achieve significant growth, especially if they find ones characterized by gross domestic product (GDP) growth and increasing internet access.

The number of tongues enterprises need to capture most of the internet-addressable market is steadily increasing, with 14 needed in 2016. However, after enterprises have tackled the leading languages, the decisions become more difficult, reliable information scarcer, the rewards inconsistent.

Over the years, Common Sense Advisory (CSA Research) has fielded many inquiries about emerging language markets in Africa, the Middle East and Central Asia. The primary reason for these queries is that this broad region is growing rapidly. For example, by 2050, the population of Nigeria is projected to exceed that of the United States and one quarter of the world’s population will live in Africa. Companies that time their localization for the region correctly stand to reap big rewards as early entrants into fast-growing markets. However, if they jump too soon, they may find that their long-term goals are sunk by short-term realities of low per-capita wealth and political and social turmoil.

These languages — with the exception of Arabic and Hebrew — have generally not received much investment, but the realization that the “bottom of the pyramid” represents an untapped consumer market keen for the same opportunities found in developed economies is leading enterprises to reconsider the region. This investment not only can benefit the companies entering the region, but also provides lower-cost and higher-quality purchase options for individuals who previously had to make do without access to specific items or who had to deal with inflated prices.

Since 2009, CSA Research has calculated the online economic opportunity for individual languages, covering 127 of them in 2016. These figures — based on a close analysis of economic and demographic data from the United Nations, the International Telecommunication Union, the World Bank, Internet World Stats and Wikipedia’s engagement statistics, among other sources — provide a conservative estimate of the amount of income potentially accessible via the internet from members of different language communities. These figures are distinct from total income and from GDP based on political boundaries, and can help enterprises direct their language investment.

Although these figures can help assess the overall economic opportunity, customer behavior can greatly affect the equation. For example, attitudes toward intellectual property ownership vary considerably by country and language, as evidenced by illegal downloads of digital media such as software, multimedia and electronic books. Based on a combination of its own research with data from The Software Alliance (BSA)’s annual study on piracy rates in various countries, CSA Research calculates that the piracy rate for Japanese-localized software is 19%, compared to 40% for English, and a staggering 90% for Georgian. As a result, the equation for selecting the next locale is different for software and other digital products than for durable physical products.

This piracy data is a variable in calculating the market potential for products in various regions. To provide an idea of the relative software opportunity for languages after adjusting for piracy, CSA Research took the online GDP for each language, subtracted a factor based on the BSA piracy rate, and then divided it by the median value for all languages (roughly $5.5 billion). Because the resulting quotient is an abstract number, rather than a dollar value, it makes it easier to compare economic opportunities.

In this view, Arabic is the clear leader in both online GDP and the adjusted opportunity (see Figure 1).

This data becomes useful when software companies are already localizing for other languages and compare their opportunity with those from the languages in this region. Figure 2 presents the values for the 35 languages CSA Research evaluated in the region, with selected comparisons from other regions. Consider Arabic, which with a quotient of 104 ranks 11 overall among world languages. Compare this to English (the largest opportunity at 2,234) and Japanese (the second-largest at 612). Mathematically, this means that for every 10,000 units of English software a developer sells, it would reasonably expect to move about 2,739 Japanese units and 466 Arabic copies, all other things being equal.

Comparing these figures allows software developers to estimate the market potential based on other known data points. For example, if a company makes a profit on an Icelandic version, it would suggest that any language with a quotient higher than that of Icelandic is a good candidate for investment, all other factors being equal.

The data presented above can help enterprises assess the short-term sales opportunities for traditional permanent licenses of desktop software. If they offer cloud-based software or online authentication methods, piracy rates will typically be lower, which increases the potential economic opportunity over the figures presented above. However, developers considering localization into these languages need to be aware that high-bandwidth internet access may be spotty and subject to outages in many of the countries under consideration. Software that requires constant access to a remote server may not work properly, so the opportunity will be smaller in those cases.

Although this analysis is not a substitute for careful study of particular countries’ needs and markets, these results can help developers looking at the region to identify languages that are likely to justify investment in the short run enough to avoid losing out on them before growth boosts them. As companies evaluate these languages, they should consider both their present state and their long-term growth potential. Most of the languages from the region focused on in this article appear to present small opportunities today, but in five or ten years they may be much larger. As CSA Research’s examination shows, the size of the available pie continues to grow and more and more languages rise every year to the level where they become attractive opportunities.