Are you acquainted with Rosetta Stone? They sell language learning software in the "couple of hundred dollars" range. And they're pretty freaking big.
it is difficult to differentiate
People always tell me that about my product. It isn't true for me, and my product is substantially more boring and smaller in scope than learning the key to accessing the history/culture/economic potential of China. A short list of points to differentiate on would be who you sell to, what level of learners you target, what focus of learners you target, visual design, etc etc.
There are definitely many interesting aspects of this market. I don't think it is impossible to differentiate or I wouldn't be in it. But, I really do think that prices for formal educational books, materials, and software are all heading towards $0 fast.
Rosetta Stone really has executed brilliantly in its segment of the market. It sales and marketing effort has been top-notch. It is also interesting to see how they are attempting to cross over from do-it-yourself language learners to traditional language learners. I would love to know what they are charging schools for their software.
We are making our own set of language data, which is a lot of work but which does help differentiate because students can see we have their textbook.
I always wonder how similar "very similar" is. Of course I'm curious. We haven't seen anything that (we think) is similar yet.
edit: p.s. our idea was rejected by yc, so maybe it is a terrible idea. we still think it is great which is why we are working on it.
http://news.ycombinator.com/item?id=548299
My co-founder noted that the rejection email contradicted this, but I'm sure there is some there is an explanation such as we are bad at selecting successful startups. It is tough to really know for sure, because while some of the groups selected fail, some of the ones who ought to have been selected will never succeed on their own when they may have with some guidance. So don't blame yourself, there are two parties involved and neither are God, just human.
Luckily, I don't think there is any place for ad-financed products (ads are too distracting when you are trying to memorize stuff like this), so there won't be many free commercial systems.
I am building something very similar to this. I have to say I am very impressed with what Skritter has done so far.