Duolingo's product-driven business
Notes from Business Breakdowns' podcast
Duolingo is a well-known language learning app, particularly known for their gamification features in the product community. I had explored the app and read articles on their gamification features multiple times in the past. But never understood the business side of it.
Business Breakdowns by Colossus, one of my most loved podcasts, released an excellent podcast dissecting Duolingo’s business. And I dived in. Being a purely product driven business, it provides for an interesting case study for PMs.
Here is what I learned.
💰 How Duolingo monetises?
The primary monetisation is through subscription which is about 3/4th of total revenue. Other sources are - advertising, in-app purchases and English certification fees, which are roughly equal to each other.
➕ How subscription model works?
Duolingo has a freemium model. The entire learning content is available for free with non-intrusive ads. The paid subscription is ad-free along with some value added features. Numbers are -
90 million MAU, 30 million DAU
Out of that, 7 million paying subscribers ~ 8% paying user base
Subscription fee varies depending on monthly/annually, region-wise, standalone/family package etc.
For US, on average, 80$ - 90$ annually
🆓 Why do users subscribe when the content is available for free?
This is interesting. Does ad-free experience and current set of value added features explain the 8% conversion?
The podcast says that one of the reason is that users love the product and wants to support the mission of the company. This is listed as one of the benefits of subscription.
💸 What about the margins of the business?
Main cost of revenue is platform fees paid to Google/Apple
Gross margin is ~70%
Cost of R&D is 40%
So, ~30-40% operating margin business
📈 How does the business grow?
As of 2023, about 80% of the users are acquired organically
Product experience and effectiveness driving word of mouth
Social features. For eg: users sharing their streaks and achievements on social media
🎲 How is gamification contributing to business?
Well, it’s all about retention. Duolingo figured out that the most important problem to solve for language learning is sustained motivation. And they solved it effectively using gamification elements.
Listen to the podcast to know about the founder’s story, certification business and how Duolingo is incorporating AI to further improve the language learning experience.
Bonus read - Duolingo’s former CPO Jorge Mazal shares story of how they reignited the growth on Lenny’s newsletter