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

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

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Id: ri-tzZcGYk0

Length: 15min 42sec (942 seconds)

Published: Sat Feb 26 2022