🐨 Using Duolingo For 60 Days
Overlooked #89
Hi, it’s Alexandre from Eurazeo (ex. Idinvest). I’m investing in seed & series A consumer and consumer enablers startups all over Europe. Overlooked is a weekly newsletter about venture capital and underrated consumer trends. Today, I’m sharing Duolingo’s key success factors after having used the app on a daily basis in the past 60 days.
Duolingo is a massive consumer subscription app. It has become synonymous with learning a new language online. The company went public in July 2021 and is now worth over $7.5bn in enterprise value. It has 40m MAUs and generated $207m in revenues in the past 12m.
I've been using Duolingo on a daily basis to learn Italian for more than a month. I thought that it was a good milestone to share with you what I believe to be the key ingredients behind the success of the app.
In this post, I will highlight the following key success factors:
A real pay to upgrade model with a powerful funnel to convert hooked users into paying subscribers
Strong features combined to drive engagement in the app with gamification and social as key pillars
A culture of continuous A/B testing to enhance the experience
An ability to expand its market beyond paying subscriptions on the app
Part I - A real pay to upgrade model with a powerful funnel to convert hooked users into paying subscribers
I distinguish three categories of mobile app subscriptions:
Pay to use: you need to subscribe to become an engaged users. Free users cannot access the app or the value provided to free users is too small to hook them on the product.
Pay to upgrade: you can become an engaged user as a free user and you can pay a subscription to enhance your experience (remove ads, access additional features, etc.).
Pay to pay less: your app is generating revenues through transactions to purchase a product or a service. If you are an engaged user, you will be able to pay a subscription to reduce the average price paid per purchase.
Most apps generating most of their revenues through subscriptions are using a pay to use model because it's the most efficient way to maximise revenue generation. You cannot use these apps as free users in the long run because the value of their free plan is too low.
On the contrary, Duolingo has a real pay to upgrade model. You can use Duolingo on a daily basis to learn a language without paying a subscription. The app uses this model because (i) it knows how to extract value from its free users (ii) it has a great funnel to convert hooked users with a willingness to pay into paying users resulting into a 5% conversion rate of MAUs into paying users.
First, Duolingo is using 3 different levers to extract value from free users:
Data: Duolingo generates 2.3bn tracking events per day. It would not be as massive without free learners. This data is crucial to enhance the learning and the engagement on Duolingo.
Word of Mouth: Duolingo free users are advocates providing free marketing for the app through word of mouth. Contrary to most subscription apps, Duolingo is not relying on advertising to grow its user base. Between 2011 and 2019, the company only spent $14.5m in external marketing. It works because Duolingo has a strong brand and offers a delightful experience to its free users. It will be the 1st answer that will come to mind to many people when a friend ask them how to start learning a new language.
Advertising: Duolingo is amortizing - if not generating profits - on free users through advertising which represents 17% of the company revenues. As a free user, any time you complete a lesson as a free user, you will have to watch a video ads. If you want to unlock bonuses or restore your life gauge, you will also have to watch ads.
Second, Duolingo is combining a set of techniques to convert free users into subscribers:
An upgrading flow combining the best market practices for subscription apps. I like how the benefits of the premium subscription are highlighted (a nice icon, a title and a 1-line description), the quantitative and personalized benefit of being a subscriber ("Plus learners are 4.2x more likely to finish the Italian course!"), the Blinkist-inspired free trial to remove concerns around forgetting to cancel your subscription before the end of the trial and how Duolingo pushes you to select the annual plan vs. the monthly plan to get a discount. The upgrading flow is shown at the end of the onboarding but also at many key moments in the learning experience (e.g. when you complete a lesson, when you run out of hearts in your life jauge etc.).
A dedicated upgrading funnel depending on the premium feature that you want to highlight. For instance, free users have a life jauge with 5 hearts. Anytime they do a mistake they loose 1 heart. When they run out of hearts, Duolingo will systematically push its subscription highlighting specifically that you will have unlimited hearts as premium member.
Using video advertising in your own app to promote the subscription: I told you that Duolingo was monetizing free users through advertising but Duolingo has also crafted its own video ads that is regularly showcased to free users.
Unlock the premium version of the app during 3 days when users are hooked: when you use Duolingo for free during 7 consecutive days, the app will offer to switch in a pro-mode during 3 days without having to start a free trial or enter your credit card. As a result, you experiment the benefits of being a premium member and when the 3-days end, it's super hard to come back to the free experience.
When you become a Duolingo Plus subscriber, Duolingo has done a great job at remembering you constantly that you are a pro user. You have a different app icon, a different animation when you open the app, you have a small icon on the top right of the main screen signaling that you are a pro user, etc. I believe that this is key to remind the user that you are bringing him additional value with pro features.
Part II - Strong features combined to drive engagement in the app with gamification and social as key pillars
Social and gamification are the two main pillars used by Duolingo to drive user engagement over the long run.
Duolingo has the following gamification features:
Experience points: anytime you complete a lesson on Duolingo, you earn experience points (anywhere between 10 and 90 points depending on bonuses and on the mistakes made).
Bonuses: each learning item is divided into 5 levels. When you complete a level, you double the experience points you will be able to collect during 15 minutes.
Hearts: as a free user, you have a life gauge with 5 hearts. Anytime you make a mistake, you loose a heart. To regain a heart, you need to watch video ads or to wait for 4 hours. It creates frustration for free users because it prevents them to learn as fast as they want. Premium users have unlimited hearts and I believe that this system is one of the main reasons an user will start paying.
Mini-games: during the week, you have two mini-games to generate more experience points than what you would do in a usual lesson. In the first mini game, you can earn 40 experience points by answering correctly up to 16 questions in less than 1 min 40 seconds. In the second mini game, you have several levels to win experience points by answering correctly up to 16 questions. The more you advance in the levels the less time you have to answer the questions but the more experience points you can win.
Gems: Duolingo has its own virtual currency. You own gems anytime you complete your daily learning goals (spending 5, 10, 15 or 30 minutes on the app depending on what you set up during the onboarding) or anytime you complete a challenge (e.g. completing 10 levels or adding 3 friends on the app or completing 30 lessons without mistakes).
Duolingo has the following social features:
Friends: Duolingo pushes you to add your friends on the app. You can then follow their progress on a daily basis and give them high fives when they reach certain achievements.
Leagues: every week, you participate in a league with 30 Duolingo users. You can be promoted to a better league or downgraded to a lower league based on the number of experience points all the participants collected during the week. It motivates users to grind experiences points beyond their learning objectives. During the week, Duolingo nudges you to come back to the app to avoid being downgraded or to earn more points to be upgraded.
As a result, when you are motivated to learn a new language, this mix of social and gamification features is a great way to keep you hooked into the app.
Part III - A culture of continuous A/B testing to enhance the experience
"The foundation of our product strategy is our relentless focus on improving learner engagement through A/B testing, and we run hundreds of A/B tests on new product features each quarter." - Duolingo's S1
Duolingo has reached impressive engagement and conversion metrics because it has incrementally improved its product through A/B testing. The team runs 500 A/B tests per quarter.
It's a data driven methodology to make decisions on how to improve a product. You will test something new that you want to implement by showcasing the innovation (e.g. a product feature, a new animation, a new lesson, etc.) to a random subset of your audience while maintaining the original version of your product for another batch of users. As a result, you will be able to quantitatively evaluate the impact of the new version compared with the control/original version.
Using the app for 30 days was enough to see several iterations on the product. For instance, Duolingo is testing different icons for its mistake practices lessons or is testing different ways to display your results after you complete a lesson.
Part IV - An ability to expand its market beyond paying subscriptions on the app
Since day 1, Duolingo has been obsessively expanding its addressable market. Obviously, it has progressively added new languages to learn on the platform and has made the product available on Android and Web after starting on iOS.
Duolingo went beyond the natural extension for its core product. In 2016, it released the Duolingo English Test which is competing with the TOEFL to assess English language proficiency. With covid, Duolingo's test has been massively adopted in the education sector as it's an online test. In 2020, Duolingo sold 344k tests compared to 17k tests in 2019.
Moreover, Duolingo is developing adjacent education apps starting with Duolingo ABC which is an app released to help kids between 3 and 6 years old to learn the literacy basics in English. Duolingo has also started to upsell its product by adding a family plan and by targeting language teachers to tell them to use Duolingo as a complement to their course.
Conclusion
I'm really impressed by Duolingo's success. Duolingo knows that it has a great product and that it has become the market standard to learn a new language online. As a result, Duolingo is operating to maximize success in the long run.
It does not push users to become subscribers at all costs when most subscription apps are just optimizing for maximizing revenue generation in the short run. It has a generous free plan to turn free users into ambassadors. You can have up to 17 days of free trial before converting into a paying subscriber. Only Apple, Spotify and Netflix have free trials period that are longer than Duolingo. It's not a surprise because Duolingo is boxing in the same category as these players.
Thanks to Julia (🦒) for the feedback! Thanks for reading! See you next week for another issue! 👋