Duolingo: One Bird, Two Stones 🦉 Transcend Newsletter #45
Duolingo's IPO and their bet to bundle language learning and testing
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This week’s newsletter is about Duolingo, the global language learning app that went public yesterday. Read on to learn more about:
What Duolingo does today, and how it does it
The “One Bird, Two Stones” approach to language learning
The language learning market map
The year is 2011.
In his TED Talk, Luis Von Ahn explains his past crowdsourcing project (the famous CAPTCHA initiative) and his exciting new goal: to use the same crowdsourcing idea to translate the internet. A new project was emerging, and it was called Duolingo.
The goal was extremely ambitious: to get 100M people to learn new languages through a free app. In the backend was a collaborative translation engine to translate the internet.
A decade after, the product has changed drastically and has moved away from translation. But Duolingo has lived up to the ambition. It went public this week and almost reached a $5 billion valuation.
As I dove deep into their S-1 and their history, it became clear to me Duolingo's was the story of “one bird and two stones”, as we’ll soon see.
Duolingo Today: Language Learning + Proficiency Testing
Duolingo is the largest language learning app in the world.
It has over 500 million learners registered to learn 40 different languages. It has 40 million monthly active users (MAUs) and almost 10 million daily active users (DAUs). For certain languages like Irish and Hawaiian, there are more individuals learning those languages on Duolingo than there are native speakers!
Duolingo is still led by Luis Von Ahn and maintains a strong mission focus: to foster universal access to high-quality education. Their freemium model is key to this. Users can access all content for free and can get a Plus subscription for $7/month to remove ads and access the app offline.
This freemium model has allowed Duolingo to grow fast during the last decade. Revenue more than doubled in 2020 to $161M, with $55M in revenue in the first quarter of 2021 and 72% gross margins. Duolingo spent 33% of its revenue in R&D (developing new languages and new user experiences), which contributed to their $15.8M loss in 2020.
Subscriptions represent 70% of its revenue, but they have other growing products that complete their offering, such as the Duolingo English Test.
Launched in 2016, the Duolingo English Test (DET) is an online, on-demand assessment of English proficiency. Demand for the test grew by 2,000% last year and jumped to 340,000+ users. Over 3,000 universities now accept DET results as proof of English proficiency (including top colleges like Yale, Stanford, MIT, Duke and Columbia).
Duolingo describes its app as "bite-sized, on-demand and fun".
It uses stories, skill maps, and badges to structure and encourage learning, and it uses behavioral nudges to keep users coming back to the app. The company focuses a lot of its efforts on optimizing its reminders and push notifications to users – so much so, it’s become a bit of a meme on the interwebs.
Critics argue that Duolingo has a great gamification engine but not a great learning experience.
Duolingo provides a "single-player" user experience in language learning. Evidence available shows Duolingo improves grammar and vocabulary, but is still limited in other critical areas like speaking or listening.
We can learn a lot about Duolingo's position and future from their S-1: for those interested in diving deeper into the financials and projections for Duolingo, feel free to check out my full S-1 Analysis.
"One Bird, Two Stones"
Duolingo's approach is best defined by this sentence: "one bird with two stones". The green little owl is betting on bundling language learning and proficiency testing into their core product. This is rare, as both sectors have been, in my opinion, artificially separated in the past.
Separating learning from testing is like separating diagnosis from treatment. Visiting a physical therapist to overcome pain is only helpful if the diagnosis is complemented with treatment or physical therapy based on your personal situation.
Instead, in traditional proficiency testing, students prepare for an exam, pay for very expensive independent classes for months, and then take the test at a physical testing location (if you have one in your region, that is). Test results measure proficiency (the “diagnosis”) but fail to provide actionable learning opportunities based on those results (the “treatment”). This is not a very pedagogically sound way of learning.
Duolingo has a massive opportunity here: they can become the largest provider of both language learning and proficiency testing, simultaneously. Duolingo can train you, certify your proficiency, and then continue training and adapting your learning plan to your needs so you can score better in your next exam.
All this done at an affordable rate, and globally – this is the "one bird with two stones" approach.
The Language Learning Market
This won't be an easy feat, as they face strong competition in the growing language learning market.
The language learning market is valued at $61 billion – almost two billion people across the world are learning a new language. The market is expected to grow to $115 billion in 2025. Online language learning is expected to grow from $12 billion last year to $47 billion by 2025 (representing 41% of total consumer spend on language learning), according to HolonIQ.
Instead of competing for existing language learners, Duolingo wants to reach new learners: 80% of their new users were not using another language-learning solution prior to Duolingo (according to the S-1).
.Here is the market landscape:
📱Consumer Learning Apps: these are learning apps that all take slightly different approaches to language learning, like Babbel (which went public this year with 10M subscriptions), Busuu (with 120M users, planning an IPO soon), Rosetta Stone, FluentForever, Mango Languages, or Lingvist.
📝 Proficiency Testing: these test language proficiency and are divided into accredited (accepted by higher education for admission) and non-accredited.
Accredited: IELTS (3.5M test takers in 2017 from 140 countries) and ETS (in 20M tests from 180 countries, and at over 9,000 locations worldwide), both run as nonprofits and charge $200-$500 for tests.
💻 Tutor marketplaces: these involve live learning classes and marketplaces, like Preply, Hallo (cohort-based learning), Verbling (where I learn French every week), Rype, italki, Babbel ( recently launched live classes) or Open English.
✈️ Brick and Mortar & Experiences: these combine classes in-person and experiences abroad for learners, and are the least technological players: Education First ($6B in revenue, serving 15 million students), Kaplan International ($600M in revenue), WorldStrides, Berlitz, Intrax or ELS Language Centers.
How Duolingo Can Grow to $10B
For Duolingo to get to 10 billion in market value, I believe two things need to happen: grow their brand globally and improve the learning experience in the app.
1/2 Global brand expansion: Duolingo needs to continue its global growth through its freemium model.
Monetization potential: Only 8% of their registered users are active monthly (MAUs). Among their MAUs, 20% are daily users. Lastly, only 20% of those daily users pay for the app. This shows that Duolingo still doesn't monetize as much as other freemium models, though it contributes to their mission of providing mass education for millions. Duolingo has generated a lot more value than it has captured – they are in a good position to improve the subscription features, conversion, and monetization.
Global growth: While their audience is global, there are a few regions where they are still only starting to enter the market, such as Europe, Asia, and Latin America.
Strong brand: Their strong global brand and their mission statement allows them to reach learners organically and build strong partnerships with other players. Consumer awareness is much higher than its competitors:From Google Trends
2/2 Improve the learning offering: Duolingo is actively exploring M&A opportunities, and I believe they should focus on three areas to improve their “single-player” learning experience.
Live classes with tutors: Done by tutoring marketplaces and recently adopted by Babble, this could increase user engagement and conversion.
Conversation > Translation: The Duolingo experience is tied to the translation of words, which is not the most effective way to learn a language – they could increase conversational learning opportunities.
Duolingo for Enterprise: work is the main reason for learning a language for 10-15% of Duolingo users. This could be a great reason to offer Duolingo as a B2B enterprise product, like most of their competitors already do.
Grow their English Test acceptance: Duolingo should offer learners personalized training based on DET performance (“based on your score, we think you should focus on this subject to improve your scores”). Continuing the growth of higher education acceptances will be key, though employer and immigration certifications are a possibility too. Eventually, a new language certification can be introduced.
After diving deep into Duolingo and the language learning market, I’m excited for the potential of Duolingo and other bottom-up alternatives that are making language learning more accessible and integrated with testing. And if you have experienced existing language learning and testing solutions personally, I think you’ll agree as well.
If you are building a project in the space or exploring it, reply to this email and let us know! We’d love to support you.
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💻 Great analysis of the 2U acquisition of edX from Dhawal Shah, founder of ClassCentral.
🎧 We are listening to Learn in Public, a podcast covering great education companies like Duolingo in their most recent episode.
🔎 Looking for a software engineering job and feel intimidated by the interview process? Zainab Ebrahimi (Transcend Fellow) is running a free online session to properly prepare for your tech interview.
🚀 Our friend Tao Boyle, co-founder of Foondamate, is doing a public fundraise on Wefunder to scale her learning technology globally. Join us in this journey!
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Huge thank you to Dan Hunt, Daniel Sisson, Jake Singer, Chris Angeis, Dani Trusca, Diana Klatt, Gian Segato, Daniel Sisson, Jillian Anthony, David Burt and Grace Lemire from Foster, and Katelyn Donnelly, Jan Krutzinna, Jen Dyck Sprout for the feedback and suggestions through the piece.