Duolingo: How the Free App Rakes in $500M Each Year | WSJ The Economics Of

Summary

Duolingo, a popular language learning app, attracts 34 million daily users with its free, gamified lessons and a small green owl mascot. Despite the majority of users not paying, the company has a $7.7 billion valuation, thanks to a subscription model, minimal advertising revenue, and strategic use of AI and A/B testing to refine user engagement. With a focus on personalized learning and retention, Duolingo continues to innovate, exploring new monetization methods like Duolingo Max, while maintaining its commitment to free education.

Takeaways

• 📱 Duolingo is a popular language learning app with around 34 million daily users, making it one of the top educational apps in Apple's App Store for a decade.
• 💰 Despite being free, Duolingo generates around $500 million annually and has a valuation of $7.7 billion.
• 🏷️ The majority of Duolingo's users do not pay for the service; only about 9% of users contribute to its revenue, with less than 8% coming from advertising.
• 🎮 Duolingo's gamification strategy, featuring lives, progress bars, and experience points, has been key to its user attraction and retention.
• 🚀 The company introduced advertising in 2017 and a subscription model, which now contributes to its revenue but is still a small fraction of its overall income.
• 📈 Duolingo went public in 2021 and experienced growth during the pandemic, with a significant number of paying users.
• 🤖 The company heavily relies on AI, A/B testing, and data analysis to refine its app and user experience, ensuring effective learning and engagement.
• 📊 Duolingo's push notifications are carefully crafted and tested using AI to determine which messages are most effective for different users and situations.
• 📝 The company runs numerous A/B tests to optimize its app, with about 5% of its user base unknowingly participating in these tests.
• 📈 Duolingo's success is attributed to its vast amount of user data, which it uses to personalize the learning experience and keep users engaged.
• 🔑 Duolingo is exploring new revenue streams, such as the AI-powered Duolingo Max tier, to offer more interactive language learning experiences.

Q & A

How many people use Duolingo daily?

Around 34 million people use Duolingo every single day.

What is the annual revenue of Duolingo?

Duolingo makes around $500 million annually.

What percentage of Duolingo's users pay for the service?

Only around 9% of its users pay for the service.

What is the main source of revenue for Duolingo?

Less than 8% of its revenue comes from advertising, with the majority coming from subscription fees.

What is the valuation of Duolingo?

Duolingo has a valuation of $7.7 billion.

How does Duolingo gamify the language learning experience?

Duolingo gamifies language learning by giving users lives, progress bars, experience points, and streaks to encourage daily use.

What was the issue Duolingo faced with its mission to deliver free language lessons?

Duolingo faced the issue of needing to generate revenue to sustain the company, as it initially did not have a monetization strategy.

What is the subscription tier of Duolingo and what does it offer?

Duolingo offers a subscription tier where users can pay $10 a month to remove ads and get unlimited lives.

How does Duolingo use AI to improve user engagement?

Duolingo uses AI to personalize the learning experience, test different app features through A/B testing, and refine notifications to increase user retention.

What is a bandit algorithm and how does Duolingo use it?

A bandit algorithm is a method used by Duolingo to determine the most effective notifications to send to users based on past performance and ongoing testing.

How does Duolingo's use of push notifications contribute to user retention?

Duolingo uses push notifications to remind users to return to the app, with messages crafted to evoke emotions like guilt, leading to a 3% rise in retention.

What is the current subscription rate among Duolingo's users?

The subscription rate among Duolingo's users is at 8%.

How does Duolingo compare to its main rival Babble in terms of downloads and revenue?

Duolingo is around 12 times bigger than Babble by downloads, but its revenue is only two to three times that of its rival.

What new strategy is Duolingo exploring to increase revenue?

Duolingo is exploring an AI-powered Duolingo Max tier, which costs around $30 a month and allows players to role-play with AI-powered bots.

Why does Duolingo continue to offer most of its product for free?

Duolingo continues to offer most of its product for free to maintain its growth strategy and user base, despite the potential to increase subscription rates.