Duolingo Unleashes ‘Lily,’ the Sassy Chatbot Disrupting Education Forever

Duolingo’s purple-haired AI chatbot “Lily” recently took center stage during the company’s third-quarter earnings call, temporarily replacing CEO Luis von Ahn. With her characteristic “sassy” demeanor and an eye roll that the company describes as her “classic” gesture, Lily introduced herself with a touch of teenage ennui: “Hi everyone. So Luis asked me to cover for him. Lucky me… Let’s just get this over with.”

This seven-minute video demonstration wasn’t just a playful corporate stunt – it represented a significant milestone in Duolingo’s journey from a quirky language-learning app to a $7.7 billion EdTech powerhouse that’s reshaping how millions learn languages worldwide.

From Guatemala to Global Education

The story of Duolingo is intrinsically linked to its co-founder Luis von Ahn’s background. Born in Guatemala, von Ahn witnessed firsthand the stark divide between those who could afford quality education and those who couldn’t. “My net worth growing up was probably close to zero. So was my mom’s,” recalls von Ahn, who went from these humble beginnings to become one of the few Guatemalan-born billionaires.

After immigrating to the United States in 1996 to attend Duke University, von Ahn’s path led him to Carnegie Mellon University, where he would invent CAPTCHA and reCAPTCHA (later acquired by Google). It was at Carnegie Mellon where he met Severin Hacker, a Swiss computer scientist who would become Duolingo’s co-founder and CTO.

At just 24, Luis von Ahn had already achieved millionaire status through his groundbreaking technological innovations. As part of Carnegie Mellon University’s research team, he helped develop CAPTCHA in 2003, later creating reCAPTCHA in 2007, which Google acquired for tens of millions of dollars. But beyond his technical brilliance, von Ahn’s leadership style at Duolingo reflects a deep commitment to character. In a telling example of his values, he implemented an unusual hiring practice: getting feedback from drivers who transport job candidates from the airport. “We’ve declined to hire really qualified candidates who were rude to their drivers,” von Ahn reveals, demonstrating how he built not just a successful company, but one with strong ethical foundations.

The AI Revolution at Duolingo

The company’s financial performance remains robust, with revenue reaching $192.6 million, beating analyst expectations and showing a 40% year-on-year improvement. Their decision to raise their full-year 2024 revenue guidance to up to $744 million reflects confidence in their growth trajectory. The company has maintained profitability for six consecutive quarters, and their stock has performed well with a 40% increase year-to-date.

However, there are some notable strategic shifts in their business model. The company’s increased reliance on AI is evident in their decision to cut 10% of contractors, transitioning to AI-generated lessons. They’re also leveraging OpenAI’s GPT-4 for interactive features, including the new video call feature with Lily in their premium tier. This suggests a strategic pivot toward AI-driven education while potentially reducing human capital costs.

Their marketing approach is particularly interesting, using personification through Lily to create a more engaging brand personality. The sarcastic, Gen Z-friendly tone of their AI chatbot aligns well with their core user demographic and gamified learning approach. This strategy appears to be resonating with both users and analysts, as evidenced by positive feedback during the earnings call.

Despite these successes, there are some potential concerns. The company missed analyst expectations for paid subscribers (8.6 million versus expected 8.66 million), leading to a 5% drop in after-hours trading. This might indicate challenges in converting their large user base into paid subscribers, even as they continue to grow their overall user numbers significantly.

BirdBrain and Smart Systems

Duolingo’s core technology centers on “BirdBrain,” an AI engine that personalizes learning by analyzing over 500 million daily lessons, tailoring difficulty to each learner. The platform’s “Bandit” algorithm optimizes notification timing and content, boosting user retention by 3% through targeted engagement for “At-risk,” “Reactivated,” and “Dormant” users. AI has been a long-standing part of Duolingo’s strategy, now expanded with Large Language Models (LLMs) that rapidly generate content for lessons. Using detailed prompts or “Mad Libs” to guide AI generation, Duolingo can produce lesson content faster and at scale, though human experts review and refine each lesson. This approach boosts productivity, enabling experts to focus on high-level curriculum design while AI handles repetitive tasks. The workflow begins with curriculum design by Learning Designers, who set parameters for AI to generate multiple exercise options; these are then reviewed and polished by experts. With fewer than 1,000 employees serving over 21 million daily users, this AI-driven process allows Duolingo to create advanced content and expand into underrepresented languages efficiently. 

Duolingo Max and AI Innovations

The company’s premium tier, Duolingo Max, priced at $30 per month, showcases their latest AI innovations. Two key features powered by GPT-4 include:

• Role Play: DuoLingo’s Roleplay feature transforms language learning into an immersive, real-world experience by enabling learners to engage in dynamic AI-powered conversations through “Side Quests.” This innovative approach allows users to practice their language skills in authentic scenarios, from ordering coffee in a Parisian café to planning vacations with virtual characters like Lin. The feature combines carefully crafted human-designed scenarios with AI technology that responds dynamically to user inputs, providing immediate feedback on accuracy and language complexity. Initially available for English speakers learning Spanish or French on iOS devices, each conversation awards XP points upon completion, motivating learners to continue practicing. 
• Explain my Answer: The “Explain My Answer” feature on Duolingo acts like a human tutor, providing detailed explanations for both correct and incorrect responses. By offering personalized feedback that highlights specific grammar or vocabulary errors, this tool helps learners understand the reasoning behind their answers and learn from mistakes. Designed to enhance the learning experience, it supports self-reflection and a deeper grasp of language concepts, promoting more effective and insightful language learning.

The latest additions include:

• Video Call with Lily: The Video Call feature, exclusive to Duolingo Max subscribers on iOS, enables users to engage in AI-powered conversations with Lily, a Duolingo character, providing a low-pressure environment for practicing speaking skills in English, Spanish, or French. They also plan to expand to Portuguese, German, and Italian in the future
• Adventures: Duolingo has introduced “Adventures,” a new mini-game experience available for English speakers learning French and Spanish speakers learning English on iOS and Android. This interactive feature immerses users in practical, real-world scenarios, allowing them to apply their language skills in settings like ordering at a café or navigating passport control. Learners engage with familiar Duolingo characters, such as Oscar and Lily, adding a fun, familiar touch. Currently, one Adventure is available per course unit, providing a unique way to reinforce language skills through immersive practice.

The Human Cost of Innovation

While championing AI advancement, von Ahn acknowledges its societal implications. The company recently chose not to renew contracts for about 10% of its contracted workforce, opting to automate translation and lesson writing tasks. “Our stance as a company is that if we can automate something, we will,” von Ahn states frankly about the dismissals.

His perspective on AI’s impact is both practical and philosophical: “It may put one-on-one human tutors out of business. I understand that. But I think net-net it is better if everybody has access to one.”

Duolingo recently laid off approximately 10% of its contractors, affecting around 10 people primarily involved in translations and lesson writing. CEO Luis von Ahn was transparent about the role of AI in these changes, stating, “AI was a factor for some of our layoffs, but not all of them. We’re always looking to be more efficient.” A company spokesperson further clarified: “We just no longer need as many people to do the type of work some of these contractors were doing. Part of that could be attributed to AI.”

What makes this transition particularly noteworthy is von Ahn’s optimistic stance on AI’s potential in education. He believes that AI could eventually surpass human teachers in effectiveness, suggesting that while this technological shift might displace some jobs, the broader impact would be positive. “It may put one-on-one human tutors out of business. I understand that. But I think net-net it is better if everybody has access to one,” von Ahn explained. Despite these changes, the company continues to hire, particularly for engineering roles, while its stock price has more than doubled in 2023, indicating strong market confidence in its AI-driven approach.

Challenges and Future Vision

Despite their success, Duolingo faces several challenges. Elizabeth Birr Moje, dean of the University of Michigan’s Marsal Family School of Education, points out AI’s limitations: “It cannot see if a student is experiencing frustration. It cannot see body language. It cannot see joy.”

Von Ahn acknowledges the risks of AI going “haywire” but remains committed to pushing boundaries. “We’re prepared. Not in that we have major contingency plans, but I’m prepared for it to happen,” he says. The company’s CFO, Matt Skaruppa, emphasizes their focused approach: “Our mission is not to solve AI for the world. It’s to apply a certain set of things to education.”

Looking Ahead

As Duolingo continues to evolve, it’s expanding beyond language learning into music education through partnerships with Loog and Sony Music. The company’s stock recently hit an all-time high of $270, pushing its market cap to $11.75 billion.

Von Ahn’s vision remains clear: democratizing education through technology. Despite the challenges and risks associated with AI implementation, he maintains that “the benefits outweigh the potential problems.” As Duolingo pushes forward with its AI initiatives, it’s not just teaching languages – it’s reshaping the future of education itself.

From its humble beginnings as a free language learning app to its current status as an AI-driven education platform, Duolingo’s journey reflects the transformative power of technology in education. As von Ahn’s mother still asks if it’s “too expensive to call Guatemala,” unaware of her son’s billionaire status, the company continues its mission to make quality education accessible to everyone, one lesson at a time.