The Duolingo Business Model – How Does Duolingo Make Money?

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, as well as its language proficiency tests. The company operates under a freemium business model. It operates on a freemium business model.

Founded in 2011 and based in Pittsburgh, Pennsylvania, Duolingo has risen to become the world’s most popular language-learning platform. Over 300 million users are registered to 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 yourself, 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.

The platform 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.

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 Anh, 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 earned his doctorate degree at Carnegie where he eventually became a professor.

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 business, 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 used 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 allowed Duolingo to substantially increase its 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. As such, 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 over 100 percent in user growth when people around the globe were forced to stay inside as a result of lockdown measures.  

The continuous growth has culminated in the firm filing for IPO to list on the Nasdaq stock exchange in June 2021 (under the ticker symbol “DUOL”).

Today, close to 1,000 people are working for Duolingo across 7 worldwide locations, including Pittsburgh, New York, Berlin, or Beijing. Furthermore, Duolingo has around 300 million users registered on its platform.

How Does Duolingo Make Money?

Duolingo makes money via a premium subscription, display ads, as well as its 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 for a subscription or outright purchasing the features.

Let’s take a closer look at each of these revenue streams in more detail 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.

The company had stated before that Plus now makes up a substantial fraction of its revenue base but declined to provide details.

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.

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.

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.

Based on Duolingo’s S-1 filing, the company was able to generate $161.7 million in revenue for the fiscal year 2020, up 97 percent from the previous year ($70.7 million). Duolingo lost $13.5 million over that same timespan (2020).

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..