Executive Summary:
Duolingo is a platform that offers users the ability to learn over 40 languages, ranging from English to Russian.
Duolingo makes money via a premium subscription, display ads, fees from events, and language proficiency tests. The company operates under a freemium business model.
Founded in 2011, Duolingo has risen to become the world’s most popular language-learning platforms. Over 500 million users have signed up for the service.
What Is Duolingo?
Duolingo is a digital language-learning platform. The platform offers users the ability to learn over 40 languages, including English, German, French, or even Valyrian (the language spoken by Daenerys Targaryen on Game of Thrones).
Duolingo operates in modules (called Crown Levels), meaning its language programs are separated into distinct sections. Each module covers a certain topic cluster while moving from basics to more advanced content.
Hereby, Duolingo dictates the order in which these modules need to be completed. As such, new modules only become active once the previous one has been completed.
Lessons in Duolingo are made up of a range of different tasks. For instance, students are asked to translate a sentence, write a sentence themselves, or find matching words in their foreign language equivalents.
Duolingo uses a gamification system to encourage users to continue learning. Lessons include features such as the ability to compete against others or small rewards when completing a module.
Furthermore, Duolingo uses machine learning technology to analyze which words or phrases students struggle with. At the end of each lesson, students have the ability to repeat and thus strengthen them.
Apart from learning a language, students can also take a certified English test on the platform called the Duolingo English Test.
Separately, the platform has introduced an app aimed at people learning mathematics called Duolingo Math.
Duolingo’s courses can be accessed via the platform’s website as well as on mobile and tablet applications (available on Android and iOS devices).
Duolingo Company History
Duolingo, headquartered in Pittsburgh, Pennsylvania, was founded in 2011 by Luis von Ahn (CEO) and Severin Hacker (CTO).
von Ahn, who was born and raised in Guatemala (where his parents owned and operated a candy factory), was drawn to computers from an early age.
When he was 8 years old, his mom bought him a Commodore 64 which he immediately started to study and pick apart. While his grades at school were always very good, he’d also find himself in the principal’s office every now and then.
Despite his antics, he managed to enroll at Duke University in North Carolina to pursue a degree in mathematics.
Post-Duke, he studied computer science at Carnegie Mellon University in Pittsburgh. He received his doctorate degree at Carnegie as well and eventually became a professor at the school.
His work on human-based computation (which deals with how humans and machines can best work together) even earned him a MacArthur Fellows Program award, also known as the “genius grant”.
That genius manifested itself when he launched and ultimately sold his first business to Google in 2006. The company, called ESP Game, was a game that matched two random people together and made them determine matching photos (without being able to talk to each other).
The intention behind the game was that people would label the images they saw which would ultimately improve image search on the web. The service was renamed to Google Image Labeler and operated until 2011.
In 2007, von Ahn (who was now working as a professor) had another pretty good idea. He came to the conclusion that all the time that people lost typing in CAPTCHAs could be used for something more productive: to digitize physical books.
Called reCAPTCHA, the product authenticated users by having them type what they see in the picture (which oftentimes was a blurry book page). These book pages were unreadable by machines and therefore offered an ability to classify their text.
In 2009, Google again acquired von Ahn’s business. Today, reCAPTCHA is used by billions of users every year and across almost any website that needs authentication.
While this exit would have allowed von Ahn to call it a day and spend the rest of his life on his beach villa, he chose to stay on at Carnegie Mellon to continue his teaching. But as these things go, entrepreneurship soon kept calling again.
Again, von Ahn’s intention was to harness the power of the crowd and use them to generate and validate content on the product’s behalf. Severin Hacker (yes, that’s his real name), one of von Ahn’s Ph.D. students, joined alongside him as CTO.
The original idea for Duolingo arose from a simple question: how can you make 100 million people on the internet translate everything into different languages free of charge?
The concept was that Duolingo would provide free language courses in exchange for users translating copy, news articles, manuals, and so forth. Duolingo would then charge other companies in exchange for providing these translation services.
Due to von Ahn’s impressive track record, the team was able to raise a Series A round of $3.3 million. Duolingo launched to the public in June 2012 after almost a year in private beta.
The more than 125,000 users helped Duolingo launch its product with lessons available in English, Spanish, German, and French (and a total of 75 million translated sentences).
The impressive start allowed Duolingo to raise another $15 million in September 2012. That war chest enabled von Ahn to significantly up the firm’s engineering team, which, in turn, enabled them to launch iOS (in November 2012) and Android (in May 2013) apps soon after.
In late 2013, Duolingo was able to acquire its first clients for the translation service. BuzzFeed and CNN would be paying Duolingo for every translation the firm provided via its platform. To cap 2013 off, Duolingo earned itself the title of iPhone App of the Year, yielding the startup another surge in users.
All of Duolingo’s growth in the early days came from that word of mouth. In fact, CEO von Ahn stated that the firm never paid for advertising over the course of its existence.
While user growth was particularly strong in the early days, Duolingo eventually decided to pivot to another business model. The firm moved away from translations because it realized how complex and resource-intensive a service business would end up becoming. Clients would often require revisions and other manual work, which would ultimately cut into profit margins.
Instead, Duolingo decided to focus on the language learning aspect of its platform. With another $20 million raised in 2014, the company had enough of a runway to focus on the product. One of the first initiatives was to launch a certified English proficiency test.
The platform, furthermore, began working together with teachers to develop data-driven learning software that would be used in physical classrooms. Whenever Duolingo decided to launch one of these new products, it would do so through relentless A/B testing.
By 2015, Duolingo had amassed a user base of over 50 million people. The continuous inflow of data allowed the firm to finetune every aspect of its user experience, ranging from how it visualizes progress (it moved from a heart-based system to a progress bar) to things like the number of tears its owl mascot would cry when a user enters an incorrect answer.
Other cornerstone features included:
- The launch of chatbots for conversational interactions
- Language Clubs, which allowed users to have a shared learning experience
- Third-party apps like Tinycards (launched in 2016 but shut down in 2020)
From 2015 to 2018, Duolingo’s focus was solely put towards increasing its monetization efforts. Its user growth eventually began to stall, hitting a wall of 25 million monthly active users.
As a result, the firm hired Cammie Dunaway, the firm’s first-ever Chief Marketing Officer (CMO) who held CMO positions at Yahoo and Nintendo prior to that.
But it wasn’t until 2020 when the company’s growth started to exponentially accelerate. Duolingo reported a doubling in user numbers when people around the globe were forced to stay inside as a result of lockdown measures.
The continuous growth enabled Duolingo to go public in June 2021 (under the ticker symbol “DUOL”) on the Nasdaq. The IPO added another $520 million to the firm’s balance sheet.
Unfortunately, not everything was always going according to plan. A month after the IPO, the language app was banned in China and only reappeared in June 2022.
On the other hand, Duolingo used portions of its IPO proceeds to introduce a separate app aimed at math learners, which was launched in August 2022.
Today, over 1,000 people are working for Duolingo across 7 worldwide locations, including Pittsburgh, New York, Berlin, and Beijing.
How Does Duolingo Make Money?
Duolingo makes money via a premium subscription, display ads, fees from events, and language proficiency tests.
Duolingo is built on a freemium model, meaning its core product can be used free of charge.
If users want to access more advanced features or receive an ad-free experience, they can do so by opting into a subscription or outright purchasing the features.
Remaining free to use has enabled Duolingo to vastly outpace its competitors in terms of user numbers and ultimately made the core product better.
For instance, Duolingo links to its native forum for every tasks, thus providing users with additional context. Those forum links often feature multiple answers, which ultimately enhance the learning and product experience.
Additionally, the more users the platform onboards, the more income it generates from advertising (more on that in a bit).
The popularity of the platform consequently enables Duolingo to cross-sell customers into premium subscriptions as well as other types of services such as online events.
In an interview with Yahoo, founder von Ahn disclosed that around 7 percent of Duolingo’s user base are paying subscribers, with the rest choosing to stay on the free tier.
Adopting freemium is a fairly common strategy among EdTech firms. Prominent examples that have used it successfully include Desmos or Kahoot!, among many others.
So, without further ado, let’s take a closer look at each of Duolingo’s revenue streams in the section below.
Duolingo Plus
Duolingo Plus is a premium subscription that offers a few perks. These include:
- An ad-free experience
- Ability to download lessons and access them offline
- Unlimited hearts and skill tests
- A monthly streak repair
- Access to a progress quiz
Duolingo Plus costs $12.99 per month. A discount is applied whenever customers pay for a half- or full-year plan upfront. Just like any modern-day subscription, Duolingo Plus can be canceled at any time.
Furthermore, Duolingo offers different tiers for both families as well as businesses. For example, a company that wants to get Duolingo for 500 of its employees would pay $24,995 per year.
In 2021, Duolingo generated $224.5 million in revenue from subscriptions. This represents roughly 89.5 percent of the firm’s total revenue for that year ($250.8 million).
One of the keys to converting customers is Duolingo’s heavy usage of A/B testing. The company runs around 500 tests every quarter to determine the effectiveness of CTA buttons, pricing tiers, and so forth.
Advertising
Users that are not willing to pay for Duolingo’s premium subscription will see display ads when engaging with the platform.
These display ads may appear on the progress tracking dashboard, the user’s profile section, or when undergoing lessons.
Duolingo then gets paid for every impression, meaning whenever an ad appears on the user’s screen.
However, ads only make up a fraction of its earnings while the amount it makes is currently not being disclosed.
Founder von Ahn said that he does not want the ads to distract users from the core experience, which means they only appear in selected areas and make up a tiny fraction of the user’s screen.
Language Tests
In 2014, Duolingo launched language proficiency tests that users would be able to take on their smartphone.
At the time of launch, organizations like the ones providing the TOEFL had a quasi-monopoly on the language testing market.
Users would pay $200 and more for the test, prepping material, as well as the cost of driving to a test center (that often would be quite far away).
Duolingo decided to take on these institutions with the launch of an online test that would verify a user’s English proficiency level.
Users pay a one-time fee of $49 to take the Duolingo English Test. The online test is monitored by a certified professional who checks the student’s camera for any irregular movements (to avoid cheating).
The test is 60 minutes long. Students will receive a certificate of accomplishment after successful completion.
Events
Duolingo allows the users on its platform to host virtual events during which they can practice a given language with other learners.
The platform then takes a 20-percent cut from the host. So, if an event fetches $100, then Duolingo gets to keep $20.
And since Duolingo knows what languages its users are currently practicing, it can target those very same users by inviting them to relevant events (which likely increases conversion rates).
Duolingo Funding, Valuation & Revenue
According to Crunchbase, Duolingo has raised a total of $183.3 million across 9 rounds of venture capital funding.
Notable investors include General Atlantic, New Enterprise Associates, Durable Capital Partners, Arctic Ventures, Kleiner Perkins, Ashton Kutcher, and many more.
During its latest funding round, announced in November 2020, Duolingo was able to garner a valuation of $2.4 billion. This represented a significant uptick from the $1.65 billion valuation the firm received a few months earlier in April 2020.
Said valuation has since increased around $4 billion during its time as a public company.
During fiscal year 2021, Duolingo generated $250.8 million in revenue, an increase of 55 percent from the year prior.
