How do you think lightweight consumer software products like Duolingo and Grammarly fit into this framework? They feel decidedly "nice to have" and don't really have strong/unique business models behind them -- and yet they've created a ton of value for consumers and investors. Do you think there is another vector of consideration around the ability to amass a unique data asset through consumer usage?
Duolingo and Grammarly are both interesting case studies to think about.
I think the reasons that both have built $100M+ subscription revenue businesses (and I believe gross profit >$100M for both) are:
A) Total addressable market of Act I - very large for both.
B) Existing recurring behavior - a lot of people do want to learn and practice a language already, and a lot of people write very often on their computers, so both use cases tap into existing behaviors nicely.
C) Win-back potential - people go in and out of language learning but are drawn back to Duolingo - particularly important factor for them but I think also has some applicability to Grammarly. Both products have useful free tiers that keep users engaged even if they are aren't paying yet.
D) Network effects - I think this is probably the key factor to both of these companies becoming stronger and stronger. Both leverage data to enable the consumer experience to get better and better the more people use them.
So I think the above factors make up for both being more nice to haves than must haves, and in addition, they are both must haves for a certain subset of users (e.g. pilots who need to learn another language for their job for Duolingo! or students who will get better grades with grammatically correct writing!).
Great list, Nikhil! If you were in Duolingo's shoes, what premium [NFX-based] feature would you add to make it a more sticky/must-have subscription, without limiting the free tier?
Hey Nikhil, I have been reading your essays on Substack about consumer subscription startups and I'm working on one in the food space, where could I reach out to you about it?
How do you think lightweight consumer software products like Duolingo and Grammarly fit into this framework? They feel decidedly "nice to have" and don't really have strong/unique business models behind them -- and yet they've created a ton of value for consumers and investors. Do you think there is another vector of consideration around the ability to amass a unique data asset through consumer usage?
Thanks Chris for this question!
Duolingo and Grammarly are both interesting case studies to think about.
I think the reasons that both have built $100M+ subscription revenue businesses (and I believe gross profit >$100M for both) are:
A) Total addressable market of Act I - very large for both.
B) Existing recurring behavior - a lot of people do want to learn and practice a language already, and a lot of people write very often on their computers, so both use cases tap into existing behaviors nicely.
C) Win-back potential - people go in and out of language learning but are drawn back to Duolingo - particularly important factor for them but I think also has some applicability to Grammarly. Both products have useful free tiers that keep users engaged even if they are aren't paying yet.
D) Network effects - I think this is probably the key factor to both of these companies becoming stronger and stronger. Both leverage data to enable the consumer experience to get better and better the more people use them.
So I think the above factors make up for both being more nice to haves than must haves, and in addition, they are both must haves for a certain subset of users (e.g. pilots who need to learn another language for their job for Duolingo! or students who will get better grades with grammatically correct writing!).
Great list, Nikhil! If you were in Duolingo's shoes, what premium [NFX-based] feature would you add to make it a more sticky/must-have subscription, without limiting the free tier?
Hi Pooya, I honestly don't know Duolingo's product well enough to give you a good answer. Sorry!
No worries. That might be a good case for a future essay. :)
Hi Nikhil, just wanted to say thank you for this fantastic write up! I found it to be both enlightening and well written. Take care.
Thanks for the kind words, Dipan 🙏🏽
Hey Nikhil, I have been reading your essays on Substack about consumer subscription startups and I'm working on one in the food space, where could I reach out to you about it?
if you receive my emails, you can respond in email and i will receive that response.