The Hottest Education Startup in the U.S. Is a $700 Million Company Built by a Guatemalan Engineer in Pittsburgh

Duolingo, which built a big business on a free app, may file to go public in 2020. If and when it does, the startup will give
Pittsburgh a huge homegrown success story.

In a city obsessed with machine learning, one of the hottest companies in Pittsburgh is making humans smarter.

That company is Duolingo, which offers online instruction in more than 30 languages, delivered as bite-size lessons in game formats. The business--with 2018 revenue of $40 million and a valuation of $700 million--makes money from advertising and some paid services. That model works because of Duolingo's outsize reach. After being named Apple's free iPhone app of the year in 2013, it has amassed more than 300 million users, becoming the world's most downloaded education app with zero advertising. It has done so by being free, fun, and effective.

"The hardest thing about learning anything by yourself is staying motivated, which is why we decided to turn it into a game," says Luis von Ahn, Duolingo's CEO and co-founder. "We added a lot of little things to get you addicted to learning."

Von Ahn is a professor in the computer science department at Carnegie Mellon University and winner of a MacArthur "genius grant" and the Lemelson-MIT Prize for inventors. He is both celebrated and reviled for creating Captcha, those distorted letter clusters typed by website visitors as proof of sentience.

Duolingo, which anticipates an IPO in 2020, occupies an unassuming gray brick building in Pittsburgh's East Liberty neighborhood. On Inc.'s Surge Cities list of the top 50 places to start a business, Pittsburgh is No. 39. "If I were to do it again, I would start in Pittsburgh again," says von Ahn. He cites as an advantage the relative ease of hiring engineers compared with Silicon Valley. Finding people with startup experience has proved harder. But the company, with around 150 employees, recruited "tons of applicants" from a billboard it put up in San Francisco proclaiming, "Work in tech. Own a home. Move to Pittsburgh."

If Duolingo's roots are in Pittsburgh, its inspiration comes from Guatemala City, where von Ahn grew up. People there were hungry to learn English to improve their odds of landing jobs that could raise them from poverty. But language education was traditionally expensive. For example, Rosetta Stone, the market Goliath when Duolingo launched, charges around $250 for its software. (Rosetta Stone has been cutting prices for years, even as its sales have declined.)

"There is a big difference between those who can pay for the best education in the world, whereas those who don't have money barely learned to read and write," says von Ahn. "I wanted to give people equal access to education regardless of how much money they had."

Chris Olsen, co-founder and partner at Drive Capital, in Columbus, Ohio, cites that mission for his firm's investment in Duolingo. (Other investors include Kleiner Perkins and Union Square Ventures. Duolingo has raised just over $108 million.) "In America, we would be considered hobbyists: learning another language because we are going to travel or want to have a better conversation with somebody," says Olsen. "If you are in a foreign country, it can be a life-and-death kind of thing. Duolingo is able to solve that problem for a much, much larger portion of the population."

I am not a robot
In 1986, von Ahn turned 8 and asked his mother for a Nintendo. Instead, she bought him a Commodore 64. She also gave him a few computer games, whose challenges he quickly exhausted. Wanting more, von Ahn figured out how to maneuver around copyright protections. By age 10, he was running a game exchange out of his house, serving customers in their early 20s. "I would say, 'If you want some of the games I have copied, you have to give me some of your games,'" says von Ahn. "I amassed a huge game collection by piracy."

Von Ahn moved to the U.S. to study math at Duke, then switched to Carnegie Mellon for a PhD in computer science. A month into that program, he heard the chief scientist at Yahoo give a talk about 10 problems that the company--then the big dog of search--did not know how to solve. Von Ahn zeroed in on one: spammers who wrote software to obtain millions of free email accounts from which to spray junk. Working with his PhD adviser, Manuel Blum, he identified the human-robot distinction as key. "No human is going to get five million email accounts, because they would die of boredom," says von Ahn.

The pair devised Captcha and gave it to Yahoo--and to anyone else who wanted it. "Pretty soon, every website was using it, for free," says von Ahn. "There was no commercialization. I was just happy it was being used."

That happiness was compromised by knowledge that many considered his ingenious solution to be a pain in the ass. In 2007, while driving to Washington, D.C., von Ahn began calculating how many times a day people were grudgingly typing in Captchas. He estimated around two million. While the task would remain irritating, he wondered if it could at least be made useful. "It occurred to me we could get them to help digitize books," says von Ahn.

Digitizing text requires software to decipher scanned-in pages. When words are faded or otherwise elusive to optical character recognition, as often happens in older books, software fails. For humans, though, it's a cinch. So von Ahn created ReCaptcha: basically Captcha with the words typed in by site visitors gleaned from hard-to-read texts.

It was an invention without an obvious business model, until the CTO of The New York Times approached von Ahn after a talk about the project. The Times became ReCaptcha's sole customer, paying the startup to digitize a century's worth of the newspaper's archives. Two years later, von Ahn sold ReCaptcha to Google, which had embarked on a quest to digitize all the world's books before running into legal issues. At ReCaptcha's height, von Ahn estimates, it was digitizing two million books a year. (Google also deployed ReCaptcha on tough-to-read addresses for Street View.)

Better than Candy Crush
The Google sale, which von Ahn says was in "the tens of millions," left him free to follow his fancy. His fancy led him to education. Von Ahn developed Duolingo with Severin Hacker, a doctoral student he advised at CMU. The two were engineers, not pedagogues, so they cobbled together a curriculum from books on how to teach language. As the user base grew, they deployed A/B testing to refine their methods.

"If we wanted to know whether we should teach one word before another word or the past tense before the future tense, we would do experiments," says von Ahn. Although the company now employs a team of 10 PhD-level experts in second-language acquisition, "a lot of what we do still comes from watching our own users learn and improving based on the data," says von Ahn.

Duolingo divides each language into units called "skills" that include topics like food, weather, nature, and health. As users complete exercises within the skills, new levels are unlocked. Users earn crowns for achievement, and the program tallies how many continuous days they "play." Lessons are so short you can squeeze one in while waiting in line at the market. Those qualities attract people who, prior to Duolingo, never considered learning a language. "They think, 'Well, I used to play Candy Crush,'" says von Ahn. "'Now I do Duolingo. At the very least, I am not completely wasting my time.'"

Duolingo is also used in schools. Von Ahn estimates roughly 25 percent of U.S. language classes employ the program in some form. But since it is free, the company has no way to track that--and no need to do so. "We are not making any money off schools," says von Ahn. "We find it a lot easier to work with the end consumer."

The company does make money from online English language tests that are taken by foreign students wishing to attend U.S. colleges. At $49, Duolingo's exams are cheaper than TOEFL, the longtime standard, which is administered by a nonprofit. And unlike TOEFL, Duolingo does not require travel to a test center. Hundreds of U.S. institutions--including Yale, Dartmouth, and NYU--already accept the upstart's exam results. "The way Duolingo has wed technology with institutional validation they will replace TOEFL," says Drive Capital's Olsen.

Five years and counting ...
Some of Duolingo's exercises are designed not to teach but to evaluate mastery. Several years ago, researchers at City University of New York concluded that 34 hours using Duolingo is the equivalent of one semester studying a language in a university. Von Ahn believes that number has improved with changes to the system, which among other things have dramatically raised retention. "When we launched, the fraction of people who signed up and came back the next day was 15 percent. Today, it is 60 percent," says von Ahn. "It is significantly more fun."

Jay Silverman, who manages a public-television station in New York City, is among those coming back. He has logged more than 2,100 consecutive days on Duolingo: typically spending between 15 minutes and an hour on it before leaving the house. "I've hopped off transcontinental flights and immediately started using Duolingo," he says.

Over more than five years, Silverman has completed the programs in French and Spanish--which he continues to review--and embarked on German and Italian. He plans to start a new language every other year. And the experience has inspired him to seek out language learners from around the world to practice with on other sites. "Some of them have become real-world friends," says Silverman. "The work I've put in through Duolingo has changed my life."