Investing in language learning apps

What comes after Duolingo?

At F4 Fund, we’ve evaluated numerous language learning apps pitching to us over the past two years. We closely analyze how these apps leverage gamification to enhance user engagement and deliver tangible value to their users. However, many fail to implement gamification effectively enough to make a meaningful impact.

One notable solution provider in this space, Duolingo, has become an extraordinary success story, as detailed in Jorge Mazal's Substack piece "How Duolingo Reignited User Growth." Over the past decade of development and innovation, they've implemented numerous gamification features into their product.

1. Leaderboards with a league system (inspired by FarmVille 2) - this increased learning time by 17% and tripled highly engaged learners

2. Enhanced streak feature - discovered users who reached 10-day streaks were much less likely to drop off

3. Added streak-saver notifications, calendar views, animations, streak freezes, and rewards

One overlooked aspect of gamification is what happens under the hood. Duolingo has incorporated best-in-class game analytics into their operations, as Jorge used to work at Zynga and brought that knowledge to Duolingo.

While many companies focus on retention as a key metric, Duolingo specifically analyzed how users transitioned from new users to current users, and why some eventually became lapsed users, versus highly engaged learners. Their analysis of what kept people as current users, measured through a metric called CURR (Current User Retention Rate), revealed that this metric had 5x more impact on product performance than other measurements.

Still, I often hear that people aren't effectively learning languages through Duolingo. A friend of mine, a Brit, has spent two years on Duolingo learning Finnish, logging in every day, but still struggles immensely with Finnish conversations, even light chat.

In essence, Duolingo operates more like a casual game dressed up with a language learning. Its success lies in transforming language learning into a hobby, using streaks to motivate user retention and implementing effective gamification features to build a massive base of engaged users. While it may not fully address the goal of achieving language fluency, Duolingo excels at creating an engaging hobby and a meaningful way for people to spend time on their phones.

Duolingo's limitations in providing tools for achieving language fluency create opportunities for other companies entering the language learning market.

So how would I invest in a language learning app?

First, we need to understand their positioning in the market. Language learning apps can be evaluated on a positioning matrix with two axes: progress and engagement. Progress represents a combination of study depth and learning progression, while engagement measures both entertainment value and product stickiness.

Duolingo has demonstrated that success in this space requires strong gamification elements, with engagement driven by applying various gaming principles. However, the opportunity for new apps lies in how they define and deliver progress in language learning.

Second, we need to analyze where this app falls on the progress axis.

As mentioned earlier, Duolingo represents a casual approach to language learning, similar to how Farmville represents casual gaming on the casual-to-hardcore gaming spectrum. The market for hardcore language learning remains largely untapped.

Let me give an example: I’m evaluating an app that combines Rosetta Stone's depth of learning with best-in-class gamification. This raises an important question:

The key question is whether there's a genuine customer need for a more intensive language learning app. Do serious language learners actually seek entertainment in their learning process, and is this what they truly need? Furthermore, we must consider whether the number of dedicated language learners is substantial enough to justify the VC investment. Is the niche big enough?

It's reasonable to suggest that many Duolingo users primarily seek entertainment and enjoyment rather than serious language acquisition. Without clearly defining and validating the market need, it could be challenging to convince investors that a more intensive language learning product has a sufficiently large market opportunity.

Final words

To wrap up, let me share what I find exciting in the language learning space.

One obvious direction is AI. We now have functional conversational AI in our pockets that can teach languages. After experimenting with OpenAI's chat interfaces and asking ChatGPT to teach me French, I see immense potential. While there's still room for improvement, AI's capability to act as a personal language tutor will likely become transformative in the near future.

A new AI-powered language learning product could compete with Duolingo in the casual learning segment. Imagine an AI tutor that not only teaches languages but also gamifies your progress along the way. This combination of personalized AI instruction and gamification presents an exciting opportunity in the market.

Photo by Kaboompics.com