A Little More About Ads & Monetization Strategies

With Duolingo’s recent IPO, I started thinking about how they make money. Their mission has always been to “develop the best education in the world and make it universally available.” As the bespoke platform’s content is free to ensure its accessibility, I was initially puzzled on where Duolingo’s near-$5 billion valuation was coming from.

Through some research, I found there are three main ways Duolingo grows its capital. They are:

• Ads
• Subscriptions (for ad-free experiences and other in-app benefits)
• Its nascent English Test

Duolingo’s monetization strategy is interesting — it is a freemium model, though unlike most other freemium strategies, all learning content is offered without the user paying a dime.

Freemium is but one of many monetization strategies, and companies that do not employ freemium often need to rely on targeted ads for the majority of their revenue (see Google and Facebook). Knowing this, I wanted to find out more about how ads have built the foundation of some tech behemoths and whether there are alternative monetization strategies on the horizon.

There are a few methods apps & websites charge advertisers. They are:

• Pay-per-impression (when the metric is cost per 1000 views, which is standard, the moniker is cost-per-mille, or CPM)
• Pay-per-click
• Pay-per-action (views, leads, sales, etc.)

The average cost-per-click on the Google Display Network is $0.58, CPM on Instagram & Facebook can be in the $5 to $10 range.

What is mindboggling is a) ads’ already prominent position in our lives and b) ads’ room for future growth. As shown by Statista below, growth rates across ads in various mediums were mid-20% in 2019, fell in 2020 and are mostly on the rise again in 2021. As the pandemic’s recovery prolongs and more businesses build out the online infrastructure and advertising capabilities, expect ads to be here for the long run.

Apart from freemium, what other monetization strategies are possible? It largely depends on several factors, from the current (or intended) market, the product’s place in that market (focused or broad differentiation? incumbent or new player?), industry trends and the business’ goal (turn a profit or expand user base?). Some other notable strategies are:

• Free!
• Subscription
• Pay-per-use
• Paymium
• … and more?

Ads and monetization are the future and it pays to study them and assess which strategy is suitable for one’s business.