As its meandering route to monetization will demonstrate, Duolingo isn’t mission-oriented, it’s mission-obsessed.
Co-founders Luis von Ahn and Severin Hacker never wanted to charge consumers for access to Duolingo content, a purpose imbued throughout the company’s culture. For years in order to work at Duolingo, you had to be comfortable with joining a company in Pittsburgh that was in no rush to make money. The startup, filled with education enthusiasts and mission-driven employees, became “very college pizza vibes,” Gina Gotthilf, former VP of Marketing at Duolingo, described. Everyone was against making money and having structure — some employees even threatened to quit if Duolingo ever charged a cent to users.
“One thing that recruited me was this brilliance that we can kill two birds with one stone,” she said, referring to Duolingo’s original translation-service business model we talked about in part one of this EC-1. “It was obviously tied to Luis’ thinking and reCAPTCHA and it was magical and brilliant.”
Free may not have paid the bills, but it did come with a valuable upside: growth. By 2017, Duolingo would boast having 200 million users, which was double von Ahn’s goal when he first launched to the public on the TechCrunch Disrupt stage.
Duolingo launched saying it would never do advertisements, subscriptions or in-app purchases — approaches that now all exist on the platform. Today, Duolingo has a simple freemium business model that is remarkably unconventional. It has a free version with all of its learning content, and it charges a subscription of $6.99 per month for paywalled features such as unlimited hearts, no advertisements and progress tracking. It also has a number of other revenue streams it’s developing, such as language proficiency tests.
As we’ll explore, Duolingo’s route from anti-business rebel to conventional consumer subscription is complex, full of twists and turns. While Duolingo never wanted to look like other edtech companies, as we saw with its product strategy in part two, it turns out that evolving from college pizza vibes meant that it would have to take a page from its peers.
Business only speaks one language: Money
“They had users and in Silicon Valley, there was this notion that if you have users, you can turn anything into money,” said Bing Gordon, the Kleiner Perkins Caufield & Byers (KPCB) partner who led Duolingo’s $20 million Series C in 2014.
“This was not very controversial back then, at least with investors,” von Ahn said. “This became controversial for us once we raised a ton of money, and we still weren’t making more money.”
While the company’s investors were relatively lenient in the early years, patience was starting to run thin. In June 2015, Duolingo raised a $45 million Series D round led by Laela Sturdy of Google Capital (later rebranded CapitalG), valuing the company at $470 million. She invested because of Duolingo’s growth and engagement numbers, but confronted von Ahn with some direct advice.
“She said to me, ‘Look, it worked for you to continue getting bigger and bigger checks from venture capital,’” von Ahn said. “‘But this is the last time it works for you … if you’re trying to con people, you cannot con anybody bigger than us [at Google].’” Duolingo’s valuation wouldn’t just be at stake next time it went fundraising on Sand Hill Road — its very survival would be as well.
Looking back, Sturdy said that she always “had confidence that they would come up with a revenue model” because of Duolingo’s passionate and organic users.
When a startup chooses to raise venture capital, it sets itself on a heavily-prescribed course. Suddenly, success isn’t defined merely as cash-flow breakeven with a long-term sustainable business. It has to be an exit of some sorts, and a big one at that. While Duolingo used venture as a lifeline to fund its product development, venture also came with pressure to become a billion-dollar company, or more. And that meant making revenue, not just growing engagement.
Von Ahn says his conversation with Sturdy is what really changed his mindset about money. After the Google check hit Duolingo’s bank account, he and Hacker began thinking about ways to make Duolingo as much a monetary success as it had been an educational one.
Dr. Ahn or: How I learned to stop worrying and love the revenue(s)
“It was clear that Luis didn’t have commercial instincts, he had cultural instincts and a deep focus on learning,” said Gordon. “[When we invested] Duolingo predicted it was on the verge of revenue growth, and it turned out it was not on the verge of revenue growth.”
What Gordon is alluding to was a litany of monetization attempts in Duolingo’s past. Translation, which helped von Ahn’s previous two startups, didn’t work when applied to language-learning services, and the company only secured two customers before ending the service. Business partnerships, such as a relationship with Uber to certify and train drivers in Brazil to speak English, didn’t catch fire.
from TechCrunch https://techcrunch.com/2021/05/03/duolingo-ec1-monetization/