Rapid globalization in the recent years has led to an increased interest in learning new languages. While English is the most preferred language to learn, there is a growing interest in other languages like Mandarin Chinese and Spanish. A recent report published by TechNavio projects the global Online Language Learning market to grow at 10% annually over the period 2014 through 2019.
Pittsburgh-based Duolingo initially began as a project by Carnegie Mellon University professor Luis von Ahn and his graduate student Severin Hacker in 2010. Von Ahn had just sold his earlier venture reCAPTCHA in 2009 to Google for $25 million and was looking for an alternative project. Hacker and Von Ahn discussed a project around language learning as part of their weekly half-hour meetings and thus formed Duolingo. They then worked with other co-founders Antonio Navas, Vicki Cheung, Marcel Uekermann, Brendan Meeder, Hector Villafuerte, and Jose Fuentes to set up the platform. The initial goal of the company was to offer free language education to the world. Keeping with that initial objective, they have become a free crowdsourced site that offers users the ability to learn languages online. Users can choose from any of the 40 language courses offered to help them learn 13 languages including Spanish, French, German, Italian, and Norwegian.
Duolingo launched their private beta offering back in 2011. Within 6 months, they had launched their public site and by November 2012, they had released their iOS app. Earlier this year, they had a following of over 100 million users accessing their site through their website and through their iOS and Android apps. Their goal has changed marginally since, and now they plan on becoming the provider of the best possible education for the maximum number of people in the world.
Besides offering language learning courses, they also offer a platform for teachers – Duolingo for Schools. The platform acts as an assistant for teachers and offers lesson plans for them to teach languages to their students, along with access to a dashboard and the ability to assign homework. They have over 100,000 teachers accessing the platform globally.
Duolingo is still experimenting with a revenue model. Access to their platform and learning courses is free. Additionally, they do not even display ads on their platform. Till some time back, Duolingo was offering paid translation services to organizations like CNN. But plans to scale up that offering have been put on hold for now. Duolingo claims that they have moved away from translation services because it would have taken the focus away from them wanting to become an education company.
Instead, Duolingo is now working on generating revenues through a paid testing service where they conduct certified tests for English language for individuals. The tests cost $20 per evaluation and claim to be closely correlated with TOEFL. That is a significant discount over the $165-$255 that a student needs to pay for a TOEFL examination. The English language testing market has, in the recent past, seen a lot of interest by new entrants. Besides Duolingo, there are players like Pearson who have an English test available to users for $19.99 and Switzerland-based EF Education First, which even released a free testing service. These companies may be able to attract students with their low-cost testing services, but the tests still need to be accepted by universities to make them a real game changer.
The absence of revenues has not scared away investors. Duolingo has raised $83.3 million from investors including Tim Ferriss, Ashton Kutcher, Kleiner Perkins Caufield & Byers, New Enterprise Associates, Union Square Ventures, and Google Capital. Their last round of funding was held last month when they raised $45 million in a round led by Google Capital at a valuation of $470 million. The valuation has increased steadily from the $196 million estimate as of early 2014.
As you know, a non-revenue generating company valued at close to $500 million, is not in my comfort zone. Duolingo needs to start charging for a premium product and monetize its massive user base. It has been four years since its launch, and investors will start getting uncomfortable if a business model doesn’t start to crystallize at this point. On the other hand, even if 1% of its 100 million users are willing to pay $10 a month for a premium product, the company can very quickly go to a $120 million a year revenue run rate. The billion dollar question is whether they CAN come up with a compelling premium product.