The secrets behind Duolingo's success
In EdTech, Duolingo dominates with a 90% market share in free language learning. How did they achieve this, and can they maintain it?
“To develop the best education in the world and make it universally available.”
Duolingo, the world’s largest education app, was founded in 2011 by Luis von Ahn (CEO) and Severin Hacker (CTO). At the time, von Ahn was a computer science professor, and Hacker was his student. It was during this period that the vision for Duolingo emerged: a platform to provide better education worldwide. Duolingo’s mission?
How Duolingo makes money
Duolingo generates revenue through various methods, with a primary focus on selling subscriptions to users, which is the main source of income. The segments are detailed below.
Subscription
Duolingo's “main product” generates $117.5 million in revenue, making it the largest source of income. Duolingo uses a freemium model, allowing users to use the product for free or pay for additional features (similar to Spotify). Paying users can choose from different subscription types, with prices varying by country.
Super Duolingo
Price: $8/month or $96/year
Benefits: Unlimited mistakes, unlimited practice sessions, no ads, and minor additional features.
Super Duolingo Family
Price: $11/month or $132/year
Benefits: Same as Super Duolingo but for up to six users. Popular due to cost-sharing.
Duolingo Max
Price: $30/month or $360/year
Benefits: Includes all Super Duolingo benefits, plus AI-powered explanations and role-playing exercises using OpenAI’s GPT language model.
Launch in 2023 in limited regions with plans to expand. Higher cost; worth monitoring user adoption and perceived value.
Advertising
Free Duolingo users see ads. In 2023, ad revenue was $13.5 million, about 9% of total revenue. CEO Luis von Ahn emphasizes subscriptions over ads due to limited user data for targeted advertising. While ads are profitable, high-margin subscriptions are preferred. The focus is hoped to remain on product excellence rather than increasing ad revenue.
Duolingo English Test (DET)
Duolingo offers a $55 English certification test, marketed as affordable. However, cheaper alternatives exist, such as the International English Test (£9.99) and the free EFSET. Duolingo claims their test is cost-effective, provides quick scores, and is accepted by many universities.
In-app purchases
Items like diamonds generated nearly $9 million in 2023, about 5.9% of total revenue. This segment is rapidly growing.
Other
Duolingo sells merchandise, such as plush toys, generating $315,000 in 2023, a 10% increase.
New business models
Duolingo, known for innovation and a strong mission to provide quality education, is expected to introduce new revenue models. The exact nature is unknown, but the company's visionary leadership and clear mission suggest future opportunities.
Duolingo’s EdTech market
Market share
Duolingo is a major and rapidly growing player in both the EdTech industry and the language learning market. According to Duolingo's Q4/FY 2023 call, the company holds approximately 90% of the market share for monthly active users in the global online language learning market.
What’s the owls’ moat?
Apps generally have a high turnover of users, meaning users are not loyal. There are no switching costs, and anyone who can code can build an app. So how does Duolingo distinguish itself? How does it stand out in the competitive app world? Let me explain.
Moat 1: Network effect
Duolingo benefits from a network effect. Is it as strong as Instagram? No. Stronger than Clash of Clans? Yes.
Duolingo benefits as more people use the app. Besides being a learning app, Duolingo is also a social platform. You can add friends, follow them, and complete missions together. There is definitely a social component to the app. The company has over 80 million monthly active users and more than 25 million daily users. Chances are, a friend or acquaintance also uses Duolingo, and you can do missions together and motivate each other. Duolingo also has a feed (like a timeline) where you can see friends' achievements and congratulate them.
Duolingo also developed its own AI model: Birdbrain, created in 2020 (before the AI boom). Birdbrain personalizes lessons so that you don't get exercises that are too easy or too difficult. As more people use Duolingo, more exercies are completed with Birdbrain, Birdbrain can better gauge users' levels. Data plays a significant role here, and no one else has as much data on users' levels as Duolingo. Severin Hacker said that competitors can copy features, but they don't have the data. He compared it to competitors seeing only the tip of the iceberg.
The hardest part in this market is retaining users and getting them to return to the app. Unfortunately, Duolingo does not provide churn rates (the percentage of users who stop using the app), but they do say that people often stop for a while and then return to Duolingo. To retain users, you need 1) a lot of data, 2) many tests, and 3) regular new features. Duolingo has and does all three.
They also benefit from two other strong moats…
Moat 2: …
Moat 3: …
Want to read the entire Duolingo research report? Check out www.thedutchinvestors.com.