What is Duolingo and why is it worth $2.1 Billion?

Bernardo Montes de Oca

Learning a new language can be quite a challenge: first of all, it's expensive. Plus, it takes a lot of time and energy while also being frustrating at times. So Duolingo wanted to change that by making language education free. To a degree, it accomplished its goal, earning fans and critics alike.

But Duolingo's IPO is more than just the culmination for an ed-tech startup. Instead, this company changed learning for millions of people. So, what is Duolingo? And, most importantly, how did it get to have such a high valuation? Let's find out.

How Duolingo began:

Guatemalan Luis Von Ahn and Swiss Severin Hacker come from drastically different countries. In Guatemala, English was essential for professional growth, but class options were few and expensive. To study in the US, he had to take the TOEFL, which wasn't available in Guatemala. So instead, he traveled to war-torn El Salvador, spending $1,200 in the process.

Hacker, on the other hand, lived an opposite reality. German, Italian, French, and English, dominated everyday Swiss life. In both cases, language marked their lives from early on.

When the two met at Carnegie Mellon University, their affinity for language made them click. Von Ahn was a computer science professor, and Hacker studied under him for his Ph.D.

Von Ahn’s origins

The name Von Ahn might not ring a bell, but he's the mastermind behind Captcha. That's right: he created those squiggly letters you had to fill in and prove you weren't a robot. He sold this and the company, reCaptcha, to Google, for a hefty amount. In case you didn't know, those lines helped transcribe thousands of books into the Web. All thanks to you! There's a term for this: crowdsourcing, and it'll be important later.

The problem was clear to both: millions of people want to learn English but can't afford it. The reason for this is to have more job opportunities, so it was a vicious cycle, with slim hopes of an exit.

The situation presented another dilemma: these people can't pay a lot, so companies can't make a lot of money at first. The challenge was clear, but Von Ahn and Hacker met it head-on with ambition. They wanted to kill two birds with one stone.

What is Duolingo and its core idea:

Von Ahn wanted to apply the same crowdsourcing idea to language learning. He could take the users who wanted to learn a language and translate articles, thus gaining more experience.

With millions wanting to learn a new language, they could translate the articles in no time. Plus, they would do it at no charge because they reap the benefits of learning. So, what is Duolingo doing? Isn't that free work? Well, to a degree, it is.

Of course, not all users would translate articles. First, they'd begin by learning the basics. Then, as they advanced through the levels, they could translate longer sentences.

There's one dilemma with this idea: people wouldn't work for free. So the two turned into a game. Duolingo would be 100% free. The language learning platform would have a game-like approach, and users learned by helping translate the Web. Users also had fun and earned points along the way.

Duolingo was one of the first e-learning platforms to push learning gamification, and such an innovative idea caught on. By October 2011, Duolingo had received $3 million in funding from Tim Ferris, Ashton Kutcher, and Union Square Ventures.

Von Ahn then went on Ted Talks before his Beta version came out, which proved a great strategy. When the Beta version was released in November 2011, there were more than 300,000 signups on queue.

In June 2012, Duolingo had its official launch, with four languages: French, English, Spanish, and German. But the challenges were beginning.

Expansion, free of charge?

The numbers, at first, were motivating. 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, the company had landed $15 million in its series B funding, which went into two projects. First, Duolingo aimed to improve the UX algorithm for evaluating user capability.

But their most significant investment was the mobile platform. It came out on the App Store in 2012 and Android in 2013, a massive step for Duolingo. So now, everyone had access to the app on their phones and tablets.

Around that time, Von Ahn hinted at changes in the financial model, looking for other sources of income, using crowdsourcing. His idea was to have users upload articles, and Duolingo charged for having its millions of users translate them.

The idea wasn't a fan favorite, but investors did like it. Plus, the app kept proving its worth. By June 2013, it had 4 million users and, one month later, a million more.

How the company began experimenting with monetization

Duolingo kept growing, but the challenge remained: what is Duolingo going to do with most millions of users to get money out of them? The founders thought of two ways to go about it.

In 2013, Duolingo launched an incubator program to crowdsource new languages, even fictional. In the platform, Volunteers could upload entire languages or individual classes. While this idea was successful, it was still "free" work, a controversial topic.

Then, Von Ahn launched translation services in October 2013. Duolingo charged to have articles translated from English to Spanish, French, and Portuguese. The users had to be volunteers and native to each language.

To ensure a standard of quality, only users that achieved a certain level could translate the texts. While the idea seemed controversial at the time, it landed customers like CNN and Buzzfeed.

Duolingo's funding kept increasing, with $20 million in 2014, $45 million in 2015, and a $470 million valuation. As this value rose, so did the 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. The translation services lost momentum. When the company announced the $45-million investment round, Duolingo said there were no plans for expansion. Company representatives only said they still worked with CNN.

It's time for Duolingo to charge

In reality, around 2015, Duolingo had other plans. In the past two years, it had won many awards, reached millions of users, and had more than ten million downloads in the App Store.

So, the company capitalized on these numbers and the fact that most users wanted to learn English. Duolingo announced other sources of revenue, still centered around education. One visionary example was its version of the TOEFL Certification program, called the Duolingo English Test.

This test is a vital piece for almost everyone looking to study in the US. Now, an ed-tech startup wanted to compete. In Duolingo's case, the attractive factor was the price.

The TOEFL has always been expensive but, if Duolingo got enough institutions to believe in its test, they could offer the DET for $20. Thus, Duolingo made history as the first ed-tech startup to open up the TOEFL test to more people.

Duolingo had seen revenue increase from $1 million in 2016 to $13 million in 2017. But compared to the generous valuation, it still wasn't enough. So besides the test, the company took a significant shift in its traditional direction in 2017.

Though the app would still be free, ads would be more present. To avoid them, plus have online access, all you had to do was get Duolingo Plus for $9.99 a month at the time.

Other ways to make money

But the monetization ideas didn't end there. As with many games, Duolingo had streaks. But, sometimes, users forgot or couldn't practice. Can you imagine losing a 52-week streak?

Well, for $4.99, you didn't have to because Duolingo repaired your mistake. The company claimed that many users had offered to pay to keep their streaks alive, hence the idea. But the moves didn't sit well within the community. Users criticized the company's attempts to monetize, but the strategies paid off.

The Duolingo English Test, for example, had the approval of 180 institutions, including Yale and Columbia, by 2018. That same year, the company presented a $36 million revenue, tripling the past year's income.

In 2019, Duolingo had another funding round. With the $30 million, it reached a $1.5 billion valuation, making it one of the few ed-tech startups to do so.

The controversial subscriptions didn't deter users. Duolingo released statements that, by March 2020, it reached 1 million paying users. This figure would increase to 1.6 million by the end of that year, according to its S-1 filing. But, the story isn't perfect. Duolingo has had its share of criticism.

Duolingo faces criticism and challenges

With the new strategies, users criticized that the company relied a lot on volunteers, which some consider more valuable than paid employees. As soon as word got out, course instructors left the company, displeased with the profit increase.

But, what is Duolingo facing as its biggest problem? Its effectiveness. Diane Larsen-Freeman is a linguist who specializes in second-language acquisition. She told Forbes that, as entertaining as the app is, learning a language is mainly ineffective if there's no conversation with other humans.

In that same article, Von Ahn reiterated his desire to help people get a job, even a high-paying job, with the app. However, he only promises to get students to a level between advanced-beginner level and early intermediate. One employee failed to comprehend a basic question in Spanish, ¿hablas español? (Do you speak Spanish?)), after six months of using the app. Also, Von Ahn accepts that users go to Duolingo for the fun factor and that's it's not a complete waste of time.

The press lashes out

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. Experiments are common. Steve Sacco, a language expert, took 300 hours of Duolingo's Swedish lessons, only to fail an exam on introductory Swedish at UCLA.

Even the DET has several critics. Many call it a rudimentary set of exercises that barely resemble college-level English, let alone how English works in real life. Finally, there's the app itself. If you want to crack a smile, you can Google Duolingo Memes. Some of these are harsh, but, it seems, with good reason.

Let's face it: the Duolingo Owl is good at one thing: reminding you to practice. Everyday. For many, this is a good thing, as it brings discipline. But, the Owl has gotten progressively more intense. So, if you haven't used Duolingo in a week, brace yourself for tears.

It's the basis for a toxic relationship. Are you using Duolingo because you want to learn or to keep the Owl's tears away? Whatever reason it may be, millions love the app, which wasn't the only sign of success.

What is Duolingo looking for after the IPO? 

Chances are you won't read War and Peace in Russian by 2022. But, Duolingo keeps people entertained, feeling they've learned something, proving to be successful. So, in June 2021, the world was excited when the company filed its S-1 for an eventual IPO.

The fact that Robinhood offered to trade some initial stocks also helped. By the way, check out our video on this controversial trading app.

The S-1 filing's figures were impressive. By March 2021, the app had 40 million monthly users, 500 million downloads and was the highest-grossing education app in both stores. Plus, it had 5% of users on 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 reached $161.7 million in 2020, more than doubling 2019's numbers. Yet, even with these impressive figures, Duolingo still hasn't turned a profit. On the contrary, losses increased from 2019 to 2020, with similar behavior in 2021.

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. The challenge remains: keeping those millions of users and still find reasonable ways to monetize them. Because, in the end, if Duolingo adds more features only to the paid version, it drifts too far from its original language of free education.

Bernardo Montes de Oca
Content creator in love with writing in all its forms, from scripts to short stories to investigative journalism, and about almost every topic imaginable.
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