How I Built A $6.5 Billion App Called Duolingo | Founder Effect

Summary

The transcript details the journey of Luis von Ahn, the founder of Duolingo, from his childhood in Guatemala to creating one of the world's most popular educational apps. It highlights his innovative spirit, from developing the CAPTCHA system to digitizing books with reCAPTCHA. The narrative underscores von Ahn's commitment to creating a happy, egalitarian workplace culture at Duolingo, his unique hiring practices, and the company's successful freemium business model that offers language learning to millions, while maintaining a strong social mission.

Takeaways

• 🏫 Carnegie Mellon University is recognized for its excellence but is also known as a stressful environment where happiness is not a priority.
• 💡 Luis von Ahn, the founder of Duolingo, is a successful tech entrepreneur who values creating a happy workplace culture, contrasting with his experience at Carnegie Mellon.
• 💼 Luis von Ahn made significant money digitizing the New York Times and through the sale of his company reCAPTCHA to Google, which helped fund his future ventures.
• 🌟 Luis von Ahn's innovative approach to problem-solving led to the creation of CAPTCHA and reCAPTCHA, which not only served a practical purpose but also contributed to digitizing books.
• 📈 Duolingo's business model is similar to that of Spotify, offering a free version with ads and a premium subscription for an ad-free experience, which has proven to be financially successful.
• 🌐 Duolingo's popularity is immense, with more users learning languages on the platform than all U.S. high school language students combined.
• 🎓 Luis von Ahn's educational background, including his time at Duke University and Carnegie Mellon, played a significant role in shaping his career and approach to innovation.
• 💼 Luis von Ahn's commitment to a positive company culture extends to unique hiring practices, such as evaluating potential employees' behavior towards drivers during interviews.
• 🚀 Duolingo's growth was initially focused on user acquisition rather than monetization, with a shift to a self-sustaining business model around 2017.
• 📈 Duolingo's valuation skyrocketed after going public in June 2021, reflecting the company's success and market confidence in its business model.

Q & A

Who is Luis von Ahn, and what is his background?

Luis von Ahn is the co-founder of Duolingo, a successful educational technology company. He was born in Guatemala, moved to the U.S. to attend Duke University, and later pursued a Ph.D. at Carnegie Mellon University. He has been involved in creating several successful tech ventures, including CAPTCHA and reCAPTCHA.

What was Luis von Ahn's first major business success?

Luis's first major success was a game he developed in 2003 that helped improve Google’s image search algorithm. Google purchased the game for a few million dollars.

How did Luis von Ahn come up with the idea for CAPTCHA?

Luis got the idea for CAPTCHA after hearing a talk by Yahoo's chief scientist about the problem of spammers stealing email addresses. CAPTCHA was designed to differentiate humans from bots by asking users to type distorted characters.

What is reCAPTCHA, and how does it differ from CAPTCHA?

reCAPTCHA is an evolution of CAPTCHA that Luis developed to both authenticate users as human and use their input to help digitize books. It was later sold to Google.

How did Duolingo come to life, and why was it focused on language learning?

Duolingo was co-founded by Luis and his Ph.D. student, Severin Hacker, in 2009-2010. They chose language learning as the focus because both had learned English themselves, and they wanted to democratize education using technology.

What was Duolingo's approach to monetization?

Duolingo adopted a freemium model similar to Spotify, where most users access the app for free, but a small percentage pay to remove ads and access premium features. This model has proven successful, with 6% of users providing most of the revenue.

What challenges did Duolingo face before monetizing the platform?

Before 2017, Duolingo wasn't making any money. They spent most of their funds on salaries, focusing on growing their user base instead of monetization. Eventually, they introduced ads and premium subscriptions to create a self-sustaining business.

How did Luis von Ahn's background influence the culture at Duolingo?

Luis grew up observing the tension between bosses and workers in his family’s candy business. He applied these lessons to create an egalitarian and happy workplace at Duolingo, prioritizing a positive company culture.

What unique method does Duolingo use to assess potential executive hires?

Duolingo secretly collects feedback from drivers who pick up executive-level candidates from the airport. If a candidate treats the driver poorly, they are not hired, regardless of qualifications.

What is Luis von Ahn’s proudest achievement with Duolingo?

Luis is most proud of the culture he has created at Duolingo and the mission to democratize education, offering free, high-quality language learning to millions of users worldwide.

Outlines

00:00

🎓 Early Life and Education of Luis von Ahn

Luis von Ahn, the founder of Duolingo, discusses his background, including his upbringing in Guatemala where learning English was crucial for opportunities. He shares his journey from attending Duke University on a full scholarship to pursuing a Ph.D. in computer science at Carnegie Mellon University. Von Ahn's early experiences, such as witnessing the dynamics in his family's business and the influence of a Duke recruiter, set the stage for his future entrepreneurial endeavors.

05:01

🚀 From Captchas to Duolingo: Luis von Ahn's Entrepreneurial Journey

Von Ahn's entrepreneurial journey began with the creation of a game that improved Google's image search, which he sold for millions. He then developed CAPTCHA to combat spam, which was later acquired by Google. His innovative spirit led to the creation of reCAPTCHA, which digitized books while verifying human users. Von Ahn's ventures have not only been financially successful but also served a greater purpose, such as aiding in the digitization of The New York Times' archives.

10:01

🌐 The Birth and Growth of Duolingo

The idea for Duolingo was born out of a desire to democratize education using technology. Von Ahn and his co-founder Severin Hacker aimed to create a platform that could teach languages for free. They secured seed funding from Union Square Ventures and later raised a significant Series A. Duolingo's user base grew rapidly, and the company eventually adopted a business model similar to Spotify, offering a free version with ads and a premium subscription service. This approach has allowed Duolingo to become a self-sustaining business while maintaining its free offering.

15:03

💼 Building a Positive Work Culture at Duolingo

Luis von Ahn emphasizes the importance of company culture at Duolingo, drawing from his experiences at Carnegie Mellon and his family's business. He has implemented unique practices, such as having drivers provide feedback on how potential hires treat them, to ensure a positive and egalitarian work environment. This focus on culture has contributed to Duolingo's low employee turnover and high employee satisfaction, fostering a workplace that aligns with the company's mission of providing accessible education.

📈 Duolingo's Impact and Future

Duolingo has become a leading platform for language learning, with more users in the U.S. than all high school language students combined. The app's gamified approach and streak feature have contributed to its success. Von Ahn shares his experience with the company's IPO, the importance of not focusing on share price fluctuations, and the company's commitment to its mission. Duolingo's culture and von Ahn's leadership have made it a place where employees are proud to work towards a common goal of universal education.

Keywords

💡Duolingo

Duolingo is the popular educational app co-founded by Luis von Ahn, aimed at democratizing language learning. It offers a free, gamified way for users to learn new languages, with optional paid features. In the video, Duolingo is portrayed as a product of von Ahn's desire to create a meaningful impact on education, making learning accessible to everyone, regardless of financial means.

💡Recaptcha

Recaptcha is a project Luis von Ahn developed to improve upon CAPTCHA technology. While initially designed to differentiate between humans and bots online, Recaptcha also helped digitize books and newspapers. Von Ahn sold it to Google, marking a significant achievement in his career. The video discusses how von Ahn used Recaptcha to tackle spam while contributing to broader societal benefits.

💡Carnegie Mellon University

Carnegie Mellon University is where Luis von Ahn completed his PhD and later launched several of his entrepreneurial ventures. Although it is praised for its academic excellence, especially in artificial intelligence, von Ahn highlights the stress and unhappiness often experienced by students, which influenced his desire to create a more positive work culture at Duolingo.

💡MacArthur Fellowship

The MacArthur Fellowship, also known as the 'genius grant,' is an award that Luis von Ahn received in 2006, which came with $500,000 in no-strings-attached funding. This award recognized his innovative work in computer science and was pivotal in funding his projects like Recaptcha. The video illustrates how this recognition provided him with the freedom to pursue meaningful work without financial pressure.

💡Captcha

Captcha is the technology von Ahn invented to prevent automated systems from spamming websites. It involves users typing distorted characters to prove they are human. Captcha became widespread across the internet, and in the video, it is discussed as von Ahn's early success in solving digital security problems, which later evolved into Recaptcha.

💡Democratizing Education

Democratizing education refers to von Ahn's mission to make learning accessible to everyone, regardless of their socio-economic status. This concept is central to Duolingo's business model, which offers free language learning to millions of users worldwide. In the video, von Ahn stresses that technology enables education to reach people globally at a low cost, fulfilling his vision of equal opportunity.

💡Guilt and Productivity

Luis von Ahn experienced guilt when he realized that millions of people were spending time filling out Captchas. This guilt led him to rethink how those collective hours could be put to better use, resulting in the development of Recaptcha. The video highlights this as a pivotal moment where von Ahn shifted his focus from merely solving tech problems to solving them in a way that contributes positively to society.

💡Gamification

Gamification is a key element of Duolingo's success, where learning is presented in a game-like format with streaks, levels, and rewards. This makes the learning process engaging and fun for users. In the video, von Ahn explains how this approach helps retain users and makes language learning feel less like a chore and more like an enjoyable activity.

💡Monetization Strategy

Duolingo's monetization strategy involves offering a free version of the app supported by ads, while charging users who want to remove ads or access premium features. This approach mirrors business models used by apps like Spotify. The video discusses how von Ahn focused on building Duolingo's user base before introducing this monetization model to keep education accessible for the majority of users.

💡Egalitarian Work Culture

An egalitarian work culture is a central theme in von Ahn’s management philosophy at Duolingo. Influenced by his family’s business experience in Guatemala, he wanted to create a workplace where there is no 'us versus them' mentality between management and employees. The video discusses how this culture has led to high employee retention at Duolingo, with most of the original team still working at the company.

Highlights

Carnegie Mellon is recognized as an excellent university but is noted for being a stressful place where happiness is not a common experience.

Luis von Ahn, the founder of Duolingo, ensures his company is a happy place to work, contrasting with his early experiences.

By age 24, Luis von Ahn had already become a millionaire several times over.

Duolingo's technology is used by hundreds of millions of people daily, highlighting its widespread adoption.

Luis von Ahn's unique approach to feedback includes paying drivers to assess the interactions of potential hires.

Three key numbers in Luis von Ahn's story are: $42,000 weekly from digitizing the New York Times, $183 million in outside investment, and a $6.5 billion valuation post-Duolingo's IPO.

Duolingo was created to democratize education using technology, making it accessible to a broad audience.

Luis grew up in Guatemala, where learning English early on significantly increased his life opportunities.

Witnessing the tension between owners and workers in his family's business influenced Luis's later company culture.

A visit from a Duke University recruiter was a pivotal moment that led to Luis's academic journey in the US.

Luis's first profitable business was a game that improved Google's image search by crowdsourcing image descriptions.

The creation of CAPTCHA solved the problem of spambots stealing email addresses, and was later sold to Google.

ReCAPTCHA was an innovative way to utilize the time spent by users on CAPTCHA to help digitize books.

Luis von Ahn's companies have been successful not only financially but also in serving a greater social purpose.

Duolingo's business model is similar to Spotify's, offering a free version with ads and a premium subscription for an ad-free experience.

Duolingo's IPO was a significant milestone, with the share price starting at $102 and trading as high as $140 on the first day.

Luis von Ahn emphasizes the importance of company culture, aiming to create a happy and egalitarian workplace at Duolingo.

Duolingo's success is attributed to its game-like experience and streak feature, which encourages daily engagement.

Transcripts

carnegie mellon is an excellent

university but

it is a stressful

place people aren't happy they're just

they kind of just

it's not good it's not a happy place one

of the things that severan and i decided

early on when we were starting a company

is like look whatever happens

you know our company should be a happy

place by the time luis van on turned 24

he was already a millionaire several

times over the 43 year old may not be a

household name but i'm willing to bet

you're one of the hundreds of millions

of people who use this technology every

day lewis isn't your average unicorn

tech founder he actually pays his

drivers to give feedback on their

interactions with potential executive

level hires on their way to and from the

airport to weed out toxic personalities

alright luis thank you so much for

taking some time out i appreciate it

yeah of course there are three numbers

to look out for in lewis's story 42 000

the amount he made each week digitizing

copies of the new york times 183 million

the total amount of outside investment

he raised and six and a half billion the

total valuation after duolingo went

public in june 2021. here's how louis

van on built duolingo one of the most

popular educational apps in the world

while managing to keep it free for

almost everyone who uses it for cnbc

make it i'm nate skid this is founder

effect

lewis grew up far from the ivy leagues

in guatemala his mother was a doctor and

made sure he learned english at a

younger age for many people that can be

the difference between a life of

struggle and one of opportunity how big

of a deal do you think it was to go to

an english program

in terms of setting on the path that you

ended up that you ended up on i think it

was a huge deal in guatemala for example

you could probably double your income

potential by just the fact that you know

english but you don't have to need it no

anything else there were two formative

moments in lewis's young life the first

was witnessing the tension in his

family's candy business between the

owners and their workers different

people in my family

would you know a lot of times they just

have this vision that it's like kind of

us versus them the second was a visit

from a recruiter from duke university

who was scouring central america for

undiscovered academic talent and she

essentially kind of

she didn't quite fill out the

application for me but she almost filled

out the application for me in 1996 lewis

moved to the united states to attend

duke university with no money to his

name yet he still managed to graduate at

the top of his class with the goal of

becoming a math professor but that dream

didn't last long i realized that all the

professors that were in math were doing

research on problems that hadn't been

solved for 500 years or whatever lewis

wanted to spend his time and energy

tackling new challenges in 2000 he was

accepted to a computer science phd

program at carnegie mellon but it didn't

take long for him to develop a knack for

creating profitable businesses in 2003

he created a simple game pairing two

players and showed them each the same

image if their descriptions matched they

moved on to the next one what they were

doing is basically just telling google

what's in these images um

and so that that really you know kind of

improved image search etc lewis says

google bought the game in 2003 for a

couple million dollars in 2006 lewis

landed on his next big idea after

listening to a talk by yahoo's chief

scientist the problem was that spammers

were writing code to steal millions of

email addresses and flood those inboxes

with junk mail lewis's answer was called

this thing called the captcha which is

these distorted characters that you have

to type um

you know

all over the internet whenever you're

buying tickets from ticketmaster or

whatever you just you know you get this

image of

messed up characters um so we came up

with that that was our idea about 200

million people take 10 seconds out of

their day to fill out a captcha and

while some would sit in amazement at

their impact on humanity lewis suffered

from pains of guilt which led to his

next big idea and so if you multiply 10

seconds by 200 million i started

thinking okay that's that turns out to

be 500 000 hours every day started

thinking okay can we

can we make good use of these 500 000

hours gave to this rise to this kind of

next project which was called recaptcha

so this is like a redoing of captcha um

where the idea was that as people were

going to they were typing these

you know over the internet

not only would they be authenticating

themselves human but they were helping

us to digitize books where did the new

tech reach the new york times which was

in the process of digitizing about 150

years worth of old newspapers lewis

charged the times 42 thousand dollars

for every year of content he digitized

we could digitize an entire year of

content in about a week

so pretty quickly we started getting

checks for 42 000 bucks like you know

about one a week lewis founded recaptcha

in 2006 and sold it to google in 2009

for an undisclosed sum but he said it

was in the tens of millions of dollars

in 2006 lewis was awarded the macarthur

fellowship also known as the genius

grant that came with five hundred

thousand dollars and no strings attached

it's not like you apply for it or

anything just one day you get a phone

call

and they just ask if

they're fortunately i picked up the

phone because you know nowadays if i get

a random phone call i do not pick up the

phone so what did you do with the five

hundred thousand dollars put in the bank

account uh uh honestly i probably spent

it mostly on

a little seed funding for this recapture

so um

where did the aha moment for

a

language service

come about where did this happen

yeah that was so i was that was around

2009 2010 um i had sold recapture to

google i had a phd student named severin

hacker who is my co-founder at duolingo

at the time we hadn't started anything

one of the insights was you know

computers are getting much smarter and

we could make it so that computers

really could teach everybody as opposed

to teachers having teach everybody that

was kind of the idea now that they knew

they wanted to teach they just needed to

agree on a subject eventually we settled

on teaching languages

and the reason for that was because both

of us have you know both of us

learned english so we thought okay let's

do something to teach english the other

thing that we really wanted to do was we

really sought technology as a way

to

to be able to really democratize

education beautiful thing with

technology is that it doesn't cost you

that much more to teach more people than

just to teach one person um so we

thought okay well we teach everybody and

and we can teach them for free and just

like that duolingo was born well sort of

so um how do you come up with the name

duolingo we looked at a lot of names one

of the ones um was

f-l-o-o-n-t which should sound kind of

like fluent but it more sounded like

fluent

and then you know my friend said oh that

sounds like i flunked it all over the

floor like it's like not good

um so we had we had a bunch of names

eventually we came up with not duolingo

but monolingual

and and that sounded like a

like an illness like you have

monolingual and at some point just

duolingo made a lot of sense now that

they had a name and a mascot it was time

to turn their idea into a business

instead of applying for a grant through

carnegie mellon in 2012 lewis reached

out to union square investors and

secured three million dollars in seed

funding they had just invested in like

twitter and tumblr and they were like

the biggest thing out there and

foursquare was also the biggest thing

out there and so unesco advantages was

like oh my god like amazing okay so um

can you tell me the amount that series a

from union square was yeah i mean one

thing that is important to mention is

series a back then this is the year 2012

we're very different than csa's today

which today is just massive so in 2012 a

very nice series a that you were happy

with was three million dollars

three million today that's not even

called a series eight today's like seed

funding around that time lewis gave a

ted talk

and at the end he made mention of this

really cool new application focusing on

language that he was working on

well that talk went viral and soon

duolingo which at the time was just a

landing page with a place to put an

email address had a waiting list with

over 300 000 names on it at the time the

other thing that was going on at the

time was uh there wasn't really a good

way to learn a language on the computer

i mean the thing that there was was

rosetta stone and it was like super

expensive it was like a thousand bucks

and so there was this thing that just

you can learn a language here it's

entirely for free and so a lot of people

were like yeah sure i'll give you my um

my email um and so you know that worked

out pretty well the instantaneous

interest in duolingo and his proven

track record helped lewis raise even

more capital 183 million in all

he used almost all of that early

investment money to build out a team and

for the next three years he focused

solely on growing his user base he

didn't even think about monetization

up until

2017-ish duolingo was making no money

this was uh not it was our finances were

very simple simply we spent money on

mainly people's salaries

and that was at that point though we

decided it's probably time to make

duolingo be a self-sustaining business

and we started actually monetizing and

it has worked out very well by now lewis

says duolingo had about 10 million

active users and was the number one

education app in the world

now they just had to figure out how to

make money while keeping the app free we

didn't just want to say you know turn

around and say oh just kidding um now

you gotta pay

so what we ended up doing is we ended up

coming up with a business model that

ends up being pretty similar to say what

spotify does or what the dating apps do

which is um you can use duolingo as much

as you want for free

but uh um

if you don't pay us you have to see some

ads at the end of a lesson

and then if you want to turn off the ads

you can pay us to subscribe and then we

turn off the ass and we may give you

other kind of premium features so that

that combo of ads and subscription

worked out really well um and so we

ended up making a you know

every year since then we've made more

and more money a full 94 of duolingo's

active monthly users opt for the free

version which includes some ads but the

company makes most of its revenue from

the other six percent of its users who

were paying subscribers from six percent

of our users give us the majority of our

money by now there are more people in

the u.s learning languages on duolingo

than there are students learning

languages in all u.s high schools

combined and one of the reasons for

duolingo success is that it feels like a

game in fact the app keeps track of how

many consecutive days a user logs in

skip a day and it goes to zero we have

over by by now i mean we haven't quite

released the the figure but we have

released this one which is we have over

a million daily active users who have a

streak longer than 365.

so we have more than

they haven't missed a single day in the

last year

what day did you ipo what was it like

for you personally were you nervous do

you remember the moment it was extremely

exciting and it's a big milestone for

the company and for everybody who has

been working on this i mean

duolingo has really good employee

retention as in like people really

rarely leave duolingo so most of the

original team is still here and so

there's been all these people that have

been at this for you know the last i

don't know eight nine years um so it was

pretty transformative what happened to

the share price our share price was 102

um it went it went really high i mean uh

uh the first trade was 140

i don't know maybe 141 or something like

that some i don't know the exact number

is around 140 and then it just kept

going up et cetera you don't know like

that would be like plastered on my wall

is like a big memory

you know share price is uh

i'm i i i was told by a lot of ceos of

public traded companies

not to pay too much attention to share

price and i've been doing that and it's

actually really good feedback here's

basically what your share price moves

randomly

with like basically no connection to

what's going on with the company what

was the biggest money mistake you've

made along the way with duolingo i don't

feel bad about anything we've done by

the time we went public we still had a

hundred and some million dollars in the

bank account meaning we had only really

spent 80 million of course we had been

making some revenue the last few years

etc but basically we could have raised a

lot less money

and by raising a lot less money you know

i think um boss employees me and the

rest of the employees would have owned a

larger fraction of the company

when i was talking to the management

team about uh interviewing you uh one of

the other senior producers said that she

had gotten very far um in the in the

interview process at duolingo you guys

flew her out to pittsburgh you put her

up and she said that even though she

didn't get the position the culture and

the vibe at duolingo

stayed with her and she was like nate

you have to ask about that culture and

so it dawned on me when you were telling

me about this candy factory that you

watched and then hearing about the

culture that you created and i'm

wondering if you can kind of sew that up

for me like what you learned there and

what you apply now most tech companies

there's a lot of

employee churn meaning like people leave

the company etc very few people leave

dual language because it's a good

workplace and i think that there's two

reasons for that i think the

you know what i what i saw with with my

family and this is not it's not that

my family was doing anything bad or

anything it just

in in a in a country like guatemala uh

there really is a kind of a boss versus

employee like us versus them kind of

thing

and and i saw that that really didn't

work i mean it's much better when when

everybody is much more egalitarian

culture so duolingo has a you know in as

much as possible a very egalitarian

culture that's one thing the other thing

is you know when when we were at

carnegie mellon carnegie mellon is an

excellent university i have nothing bad

to say about it it is really an

excellent university um excellent for

artificial intelligence

for all kinds of things but

it is a stressful place

and people when you enter the buildings

there you people aren't happy they're

just they're kind of just

it's not good it's not a happy place

um and uh you know one of the things

that severan and i decided early on when

we were starting a company is like look

whatever happens uh you know our company

should be a happy place lewis has a

unique way of weeding out potentially

toxic employees i'll tell you some of

the things we've done by the way even

for executives um

whenever we fly an executive for an

interview

or or not just accept it for a lot of

people whenever we fly them uh um we

have a driver go pick them up in the

airport and we have a set of drivers

that are the same everywhere

we actually that's part of your

interview and people don't know it um

it is how you treat them and so we we

get feedback from the drivers about how

well they were treated and so now

normally that most people are just

perfectly fine like just like that but

we have we have not made offers to very

very um

qualified competent people because they

were nasty to our driver and well uh we

don't like that because that just means

you're gonna um

you know you're gonna be nasty to the

little people and we don't want that and

so so yeah i think that that type of

stuff has really helped

lewis businesses have been incredibly

successful and yet they all seem to

serve a greater purpose the picture

matching game had the added benefit of

generating seo terms captcha helped

yahoo and many many other digital

businesses decipher between humans and

robots and recaptcha is helping to

digitize the world's books

these ideas have made lewis incredibly

wealthy but he's most proud of the

culture he created at duolingo a lot of

the people that come work at duolingo do

so because they love this mission of you

know developing the best education in

the world and making it uh you know

universally available

you