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The most crucial question facing the company, however, is quite basic: does Rosetta Stone actually work? The company's teaching method is called "dynamic immersion," in which users are taught a new language through images, text, and sound. There is neither translation nor grammar explanations. You learn by listening to people talk in the language you're trying to master, and by reading words on a screen. The images clue you into the meaning of the words. The system eschews rote memorization Rosetta Stone promises you'll learn a second language in the same way a child learns his or her first.
A January 2009 study, commissioned by the company, found that 55 hours of Rosetta Stone Spanish instruction should enable a student to pass the first semester course of a six-semester college Spanish program. "After 55 hours of study with Rosetta Stone students will significantly improve their Spanish language skills," writes Roumen Vesselinov, a statistical economist at Queens College. According to Rosetta Stone, a February 2009 survey showed that 92% of respondents expressed satisfaction with the product.
Rosetta Stone does have its critics. The company essentially uses generic images, mostly from the Washington, D.C. area, to explain vocabulary across all its language programs. This technique downplays the cultural idiosyncrasies of each specific language. "They just throw it out there at the student," says Mark Kaiser, associate director of the Berkeley Language Center. "They fail to present language as a representation of that language's culture." Author and entrepreneur Tim Ferriss, a regular language acquisition blogger who has become fluent in Spanish, German, Chinese and Japanese, is quick to credit Rosetta Stone for engaging more people in language learning. However, Ferriss argues that by shunning grammar and exercises leveraging one's native language, Rosetta Stone slows the learning process. "There's a real benefit to having the right dose of grammatical awareness, as well as English explanation," says Ferriss, whose book, The 4-Hour Workweek, is currently eighth on the New York Times business best-seller list. "The idea that you can learn honorific speech in Japanese without English explanation, for example, is, to me, handicapping. Rosetta Stone's method is effective. But it shouldn't be positioned as perfect."
The debate over Rosetta Stone's effectiveness has yet to sour the stock. But investors hoping that the stock's success will start an IPO surge there have only been four offerings this year might be disappointed. Rosetta Stone worked because it's a profitable company with solid growth prospects and manageable debt. Many IPO hopefuls don't share these traits. "Anyone who thinks that the IPO pipeline will open up is mistaken," says Sweet. "Institutions and retail investors won't even look at the stock if the company it debt-ridden, is losing money, or if sales are lumpy. There's not one IPO in the pipeline with an actual date, even though dozens and dozens of companies are ready." Rosetta Stone squeaked through with good financials and a knack for speaking Wall Street's language. Now let's see if they can keep it up.