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Learning a new language can be quite a challenge. It takes time, energy,
and a lot of patience. Plus, it can be costly.
One company wanted to change that by making language education free. On its
way to the top of the educational tech segment, it earned fans and critics alike.
Duolingo changed learning for millions of people. Or did it?
Let's talk about Duolingo in this episode of Company Forensics.
Guatemalan Luis Von Ahn and Swiss Severin Hacker come from vastly different countries,
but language was vital for both. In Guatemala,
English meant more job opportunities but learning it was expensive.
Von Ahn wanted to take the TOEFL, which was unavailable in Guatemala. So, he spent
$1,200 traveling to El Salvador only for the test. On the other hand, Hacker grew
up surrounded by German, Italian, French, and English in his everyday life in Switzerland.
Their passion for languages made them click when they met at Carnegie Mellon University.
There, Von Ahn was a computer science professor and Hacker, a Ph.D. student.
Von Ahn was already famous for his ideas. First, he created the Captcha test,
those squiggly letters to certify you were human. Then, he sold it to Google for millions.
Now, Von Ahn wanted to solve another problem: how to teach a language for free? Millions of
people want to learn English but can't afford it. Again, the challenge was clear, and the
pair tried killing two birds with one stone.
Von Ahn believed crowdsourcing could solve
learning a new language. He would take users who
wanted to learn a language and have them translate articles.
With millions on board, Duolingo would translate articles in no time. But, of course,
not all users would translate articles. So first, they'd begin by learning the basics.
Then, as they advanced through the levels, they could translate longer sentences.
Plus, they would do it at no charge because their benefit is learning. But,
wait, isn't that free work? So, why not turn it into a game?
Duolingo then became a 100% free language learning site. People learned by helping translate the Web,
having fun, and earning points along the way.
By October 2011, Duolingo had received $3 million in funding. Some of the names were Tim Ferris, Ashton Kutcher,
and Union Square Ventures. Then, after heavy promotion, the company launched in June 2012,
offering four languages: French, English, Spanish, and German.
By September 2012, the platform already had 250,000 users. 20% of those users came
from Latin America and lower-income countries. With such a strong start, investors wanted in.
By October(2012), the company had landed $15 million in its series B funding.
With this money, they released the Duolingo app for iOS in 2012 and Android in 2013.
So now, everyone could learn a language on their phones.
Around that time, Von Ahn looked for other sources of income, again
with crowdsourcing article translation. Only, this time, he'd charge for the service.
The idea was controversial, but investors liked it. Plus, the app kept
proving its worth. By June 2013, it had 4 million users and, one month later, a million more.
Duolingo kept growing. But, how do you make a profit out of those millions of users?
founders thought of two ways to go about it.
In 2013, the company launched its own incubator program for
new languages. Volunteers could upload entire languages or individual classes.
Also, Duolingo offered translation services. For example, users who were native in French,
Spanish, and Portuguese translated articles from English as practice. Meanwhile, Duolingo charged
outside customers for these services. The idea was controversial, but both CNN and Buzzfeed used it.
Duolingo's funding kept increasing, with $20 million in 2014, $45 million in 2015. Now,
the company had a $470 million valuation and many questions around volunteer work.
Few, if any, companies reach this level relying on volunteers.
Duolingo had everything going for it: millions loved the immersive, game-like approach. But the
leap from there to monetizing was still distant.
In 2015, Duolingo changed its focus. The
company tried to capitalize on the millions of users. Von Ahn announced
other sources of revenue, still centered around education, and they were ambitious.
Duolingo launched its version of the TOEFL Certification program:
the Duolingo English Test (DET). For years, TOELF has been vital for almost everyone
who wants to study in the US. And, now, an edtech startup wished to compete for less?
These tests have always been expensive. If Duolingo got enough institutions to
believe in them, they could offer the DET for a mere $20.
But money was still short. However, Duolingo's revenue went from $1 million
in 2016 to $13 million in 2017. So, the company took a significant risk in 2017.
Ads would increase on the free app. So, to avoid them, plus have offline access, all you had to
do was get Duolingo Plus for $9.99 a month. But the monetization ideas didn't end there.
Can you imagine breaking a 52-week Duolingo streak? Well, you no longer had to. Instead,
for $4.99, you could ask Duolingo to repair it and keep going.
The strategies, though not fan-favorites, eventually paid off. By 2018, the DET,
for example, had the approval of 180 institutions,
including Yale and Columbia. That same year, the company tripled 2017's income.
In 2019, Duolingo had a $30 million funding round, which ballooned the valuation to $1.5
billion, making it one of the few edtech startups to reach unicorn status.
By March 2020, Duolingo had 1 million paying users. By 2020's end, it was 1.6 million,
according to its S-1 filing. But, the story isn't perfect. Duolingo has had its share of criticism.
Though Duolingo is massive, it still relies heavily on volunteers. In fact,
many consider the volunteers' value to be greater than that of paid employees.
But the profit from paid subscriptions all goes to Duolingo. So, why keep using them?
Then, there's the app itself. The Duolingo Owl is excellent at reminding you to practice.
Everyday. For many, this is a good thing, as it brings discipline. But, the Owl has gotten
more intense. He even cries if you ignore him for too long. Just Google "Duolingo memes.”
But jokes aside, this isn't the most significant criticism.
Von Ahn has said Duolingo is a tool for people to get a job, even a high-paying
job. But, he only promises users will get to advanced-beginner and early intermediate levels.
The press loves criticizing Duolingo, with many articles claiming it doesn't
work. Language experts have also highlighted that it's too rigid and has an impractical vocabulary.
Diane Larsen-Freeman is a linguist who specializes in second-language acquisition. She told Forbes
that Duolingo's method is ineffective since there's no conversation with other humans.
One Duolingo employee didn't understand a basic question
in Spanish, ¿hablas español? (Do you speak Spanish?)), after six months of using the app.
Then, Steve Sacco, a language expert, took 300 hours of Duolingo's Swedish lessons,
only to fail a college introductory Swedish exam. As for the DET, critics call it a rudimentary set
of exercises unfit for college-level English, let alone how English works in real life.
But this didn't slow Duolingo down.
When, in June 2021, Duolingo filed its S-1 for an eventual IPO,
fans and investors took notice. The S-1 filing's figures were impressive.
By March 2021, the app had 40 million monthly users and 500
million downloads while being the highest-grossing education app.
Income had increased as 5% of users paid the Premium edition. Even the controversial DET test,
which cost $49 by March 2021, has been a hit, with users taking it 344,000 times.
Revenue more than doubled 2019's figures, reaching $161.7 million in 2020. Yet,
Duolingo still hasn't turned a profit. Instead, losses increased from 2019 to 2020.
And therein lies the challenge. Duolingo started as free, and, to a degree,
it still is. That's the reason why millions use it every month. So the company must keep
them entertained and make money. In the future, the question is the same in all languages: how?