Resource-based view of the firm - Duolingo
Context - question from the LSE
Duolingo is a US language-learning platform launched in 2009 by Carnegie Mellon University professor Luis von Ahn and his research team. With a focused mission on making language learning accessible, the organisation has pivoted through different business models over the course of its history.
Use the who/what/how framework outline at least two different business models from Duolingo’s organisational history. Read this Forbes profile about Duolingo’s history, and another about Duolingo’s international partnership, then conduct any further research you need. Your research should identify details about the organisation’s:
Revenue model;
Competitive position; and
Key features of the business process.
In addition, describe Duolingo’s competitive positioning in two of its historical business models: where it competed against Rosetta Stone, a US company best-known for its language-learning software products, and where it competed against Rosetta Translation, a London-based specialist on translation services for business documents.
My thoughts - answer for the LSE
2009-14 - This was a crowdsourced business model. Casedus (2010) argue that the fastest growing firms take advantage of structural changes. Duolingo used the model as a strategy to deliver free learning, enabled by reduced costs of access and globalisation. This online global consumer was a radical shift from convention.
The customer perceived value because it was free and involved real-world translation. A successful value proposition (30k regular users). Teece (2010) describe a business model as how payments are converted to profits. Duolingo succeeded in product innovation but not creating value. Duolingo needed to monetise B2B by using crowdsourcing to occupy the middle ground (better than Google translate but cheaper than professional translators). In 2012 estimated revenue was $876k* and monthly costs were $500k. Duolingo tweaked the model but could not make it profitable. Teece (2010) - “technology does not guarantee business success.”
*Given a 400-word average article assumption and 10 cents per word charge.
2017-22 - Casadesus (2010) proposes that consequences determine ‘the logic of the firm and how it creates value for its stakeholders’. Duolingo arguably focused on social good and created an unwieldy business model. Duolingo zoomed out to simplify the model, focusing on B2C.
In 2017 Duolingo launched subscriptions and advertising. They managed this experience carefully to ensure customers valued the proposition. Duolingo exploited this model; network effect (scale entices new paying customers), engagement (A/B testing for gamification), micropayments and subscriptions. In terms of competitive position today, Babbel and Rosetta Stone have similar propositions (products became less differentiated).
7% of customers pay subscriptions, in line with the freemium industry average. This represents 74% of total revenue, advertising being 13%. Duolingo grew gross margin from 2019-2022. It took time to become profitable, but model innovation successfully positioned them as number one in market share and the ability to reinvest profits.
Two historical business models
In 2014 Rosetta Stone sold expensive CD sets. Duolingo’s B2C positioning was disruptive and differentiated. A free, gamified proposition in online short format. In 2015 Duolingo launched a free B2B offering. This was not a revenue stream but was important for brand positioning. It was well received by teachers and students (could become consumers).
Rosetta translation was an incumbent providing high-end translation services to corporate clients. Duolingo positioned a differentiated product, students translating rather than professionals. Duolingo claimed that student review at scale, combined with a patented algorithm enabled them to deliver the same accuracy as the high-end with a faster turnaround time.