Talibs Newsletter #81
⚾️Bobby Bonilla Day, 👩🏫How Duolingo makes their money & 🍏Apple coming after your inbox
Hi Everybody
Wishing everyone a great start to summer! Here’s to more golfing, patios and warm sunny times. I tried something different this week; I read through (skimmed?) Duolingos S1 Document and wrote a bit about it. Let me know on your thoughts on DUOL.
🏃♂️Great Conversation to listen to while running
🚬The Decoder - Juul & the business of addiction
🚭TLDR: Juul erupted into the e-ciggerate market by following silicon valley principles of moving fast & breaking things along the way. They had a vision to create a “healthier” alternative to cigarettes and aimed to take down the industry. However over time - they began experimenting to get the perfect product which led them to advertising to teenagers to grab market share and then being acquired by Altria (ex Phillip Morris). i.e they went from wanting to change the industry to being part of the industry. Good interview which talks about the history of Altria + Juuls relationship along with the potential on-going anti-trust lawsuits.
What I’m listening to
Tweet that made me go hmmm..
⚾️ Planet Money: Bobby Bonilla Day
👩🏫 Tech Crunch: Duolingo Goes IPO - Time to look at the S1 Reporting
🍎 Bloomberg: Apple coming after your inbox
⚾️ Planet Money: Bobby Bonilla Day
🙋♀️Who is Bobby Bonilla: Bobby Bonilla was a New York Mets baseball player who negotiated a deal with the Mets at the tailwind of his career when he was owed $5.9M in 2000. The deal was to defer the $5.9M into possibly $30M spread out over 25 years starting in 2011.
🧢Why is July 1 Special? Every July 1, the New York Mets are required to write a check to Bobby Bonilla for $1.2M, this is insane considering he’s been retired for 20 years.
🥎How did this come about? During the year 2000, the Mets were actually decent and they had recently made it to the World Series. The following year in preparing for yet another great year - Bobby Bonilla was on their roster and was on the decline with injuries & poor performance being part of his decline.
💵 What did the mets do? The Mets decide to release Bobby Bonilla but they still owed him the remaining amount on his contract - $5.9 million. The mets approached Bobby with something called a deferred money contract.
💹What is a deferred money contract? The deferred payments give immediate salary relief for teams but often with interest attached meaning they may ultimately more than they would have if contract preceded as normal.
🤑What was the deal? However, instead of paying Bonilla the $5.9 million at the time, the Mets agreed to make annual payments of nearly $1.2 million for 25 years starting July 1, 2011, including a negotiated 8% interest. Bobby Bonilla will be 72 years old when he receives his final payment
💰Seems like a bad deal? Well, its not really a bad deal at all actually. The goal is that the Mets can do something with that $5.9M in a span of 10 years to convert that greater than the total amount owed to Bobby Bonilla.
🏅Compound Interest? For example, historically, the stock market averages around 10% returns each year, hypothetically if you dumped $1K into the stock market and re-invested your earnings every year, then in 7 years - your $1K would grow into $2K. If you do this again for another 7 years - then it will double again. After 30 years of compound interest - that $1K turns into $17K.
📛Where did the Mets invest that money? The Mets may have taken that money and invested it with Bernie Madoff who at the time was running the largest ponzi scheme in history. So yeah…bad deal.
☹️So essentially it was a bad deal for the Mets: The Mets have had a rough go around in baseball and this deal has historically been known one of the worst deferred provision deals in sports. This seems like a big “L” for the Mets.
🧐New Ownership: : Billionaire Steve Cohen recently bought the Mets last year and has spoken to Bobby Bonilla about making this day a well known official day for the Mets. The goal here would be to bring Bobby Bonilla to the stadium every July 1st & present him with this cheque. This could possibly help the Mets offset some of the money owed with some marketing branding swag & value
💭 My thoughts: I found this episode a good example of the rule of 72 which is a formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return.
Further, it was interesting to research a few deferred contract deals
Josh Smith. Detroit Pistons - Josh Smith had signed with the Detroit Pistons in 2013 but only played 105 games before the team cut him. Detroit used the stretch provision which helped spread the owed money over a longer period. The Pistons paid Smith $5.3 million per year through 2020 (6 years after he stopped playing the team)
Manny Ramírez, Boston Red Sox, : Will collect $24.2 million total from the Red Sox through 2026.
Ken Griffey Jr, Cincinnati Reds: Will receive $3.59 million from the Reds every year through 2024 as the deferral from his nine-year, $116 million deal signed in 2000.
Article 2:
Tech Crunch: Duolingo’s S-1 depicts heady growth, monetization, new focus on English certification
TLDR: Duolingo is set to go public later this summer and the aggressive monetization growth has made this company that has successfully gamified the learning experience.
📑What were the MAU changes? (Monthly Active Users): Duolingo closed the year with 27.3 million in 2019 and they increased this amount to 36.7 MAUs. (34% increase)
💸Duolingo’s monetization efforts: While the company’s MAUs rose 34% from 2019 to 2020, the company’s paying users rose from 900,000 at the end of 2019 to 1.6M at the end of 2020. That is a far sharper gain of 84% on a year-over-year basis
In percentage terms, 3.3% of Duolingo’s MAUs were paid subscribers in 2019. That figure rose to 4.4% in 2020
💰What was the breakdown of the Duolingo Revenue?
Duolingo made $161M in 2020;
📲The freemium business: Duolingo aims to make education accessible to all by helping people learn new languages. Currently they offer 100 courses in 39 languages for free. They have approx 96% of learners using a free version
Profit Margins: 70%+ gross profit, BUT 30% of their revenue goes to Apple and Google stores as fees. The stores are a big factor of their growth…but 30% seems like daylight robbery!
User Engagement: The DAU/MAU ratio went from ~15% in 2016 to 25% in 2021. Approx 1M users have a 365 day streak (meaning 1M users have logged into the app consistently everyday!) They make around $95 per paid user per year and average ~$5 per MAU per year.
User LTV on the rise - Annual subscribers increased to 70% of total subscribers in 2020 v/s 47% in 2018. Upgrade has been important for the team ; For example, annual subscribers made up approximately 47% of paid subscribers as of the end of 2018, increasing to 71% of paid subscribers as of the end of 2020. This shifts toward annual subscribers as they began phasing out the 6 month plan.
The Dataset: Learners complete 500M+ exercises everyday on the app, making it the world’s largest language learning dataset. This theme is reflected in the the founders' vision.
🌎ROW (Rest of World) vs USA - In 2019; US & ROW were 50-50% on their revenue; in 2020 - this changed to 43% in US and 57% in ROW. US Revenue increased by 2X while ROW increased by approx ~3X (mainly due to the Duolingo english test)
🇺🇸What is this Duolingo English Test?: Revenues from Duolingo English Test grew from $1M to $15M. This test is accepted by 2000+ universities globally. This essentially was a product that came to fruition during the pandemic as students were confined to their homes. This type of growth may decline but they may have unlocked something here!
Profitability: This is a tech company that is very close to profitability as they had approx ~15M in losses in 2020 compared to ~13M in 2019 however they increased revenues from $70M to $160M. The margins are incredible!
Duolingo plans to list on the NASDAQ stock exchange using the ticker symbol DUOL.
My Thoughts: Duolingo's S1 has lots of amazing things, it shows how learning can be fun & can be gamified. While doing some research, I found out about the co-founder of Duolingo - Luis Von Ahn
He's also the first to work on "Games with a purpose" - these are fun games for humans that produce productivity as a side effect.
He worked on CAPTCHA, reCAPCHA and then Duolingo. Solving complex problems in a simplistic way by capturing data from millions of users to improve machine learning
CAPTCHA is the annoying letters you type into websites to prove that you’re not a bot. reCAPTCHA was sold to Google in 2009
In 2009, he went on to build a language translator called Duolingo with his student Severen Hacker (yes that is his real name). They converted this project into a company with the mission to give access to free high-quality education to everyone.
🎮 Overall - the monetization efforts of Duolingo is predicted on gamifying learning at an accelerated space. I love how they transformed learning into gamification. I think that there's a lot of potential for them to expand into other areas out of languages. Duolingo is a data company. They use gamification to create a sticky experience, with many PMs coming from gaming companies.
Sticky users = huge opportunity to increase LTV with multiple products
A good podcast was an episode last year
🍎Bloomberg: Apple Takes the Battle With Google and Facebook to Your Inbox
TLDR: Increasing privacy is good for users, but it also helps the iPhone maker fend off rivals.
🍏 What happened? At its Annual Developer Conference in early June, Apple introduced tools intended to give users of its mail app greater control of what data to share. A list of the privacy features rolled out is here
💻Email is private though? Email is private though? That’s a whole another debate; but most newsletters & marketing emails that you receive include images that are not embedded in the message but are actually hosted remotely on another server. Opening the email pings the server to download the graphic, hence letting the sender know the time you opened the message, your location and the device you’re using.
💰Why is that important? Brands and publishers use that data to gauge the effectiveness of their content. For example; newsletters with certain open rates can charge high ad dollars for brands.
📩Apple the gatekeeper: The feature positions Apple as a gatekeeper to your inbox, approx 1/2 of all emails are opened on the Apple apps and these features are bound to hurt advertisers and newsletter publishers that rely on such data.
Who do they help? The privacy initiatives do serve the users. However, they also protect Apple’s $220B hardware business against its rivals. Apple makes most of its money from devices while its rivals make most of their income selling ads based on the data they know about your interests. Using that data, they can sell you smartphones, smart speakers more cheaply because the cost is subsidized by your value as an ad target. The email is just the next form in the “attack” against the advertising industry.
💭 My Thoughts:
This has been a topical point to discuss within the advertising industry where I’ve spoken to leaders who say
a) Apple’s play is much needed as the data intrusion from advertisers was getting too personal
b) Apples play will hurt a significant # of businesses in terms of advertisers, agencies and brands as performance measurement will be difficult.
My personal POV has been on the opposite side; the entire industry was shocked with IDFA 14.5 Privacy tracking was introduced and thus most people realized the Goliath that was Apple. Privacy is important but I do believe people are willing to forego privacy for the right perceived value.
Lets take the newsletter; the Huddle up for instance, the newsletter is a daily sports & business article published everyday and it has over 40K readers and is currently free. Each newsletter is sponsored and thus the writer is able to charge around ~$20 per 1000 readers and thus making $800 per newsletter. The newsletter calculates its metrics based on the # of opens & platform. (Location is not accessible on substack)
Yes - the writer could have a premium version and charge its users $5 and get 5% of its readers on this plan & this could be an effective version. However he does loose the greater audience and growth is limited. I’m sure he’ll do that sooner than later.
The point here is that I am okay with the writer getting the fact that I’ve opened the newsletter + which platform if it allows me to read the newsletter (Value) for free.
Another point - This all points to Apple being the gatekeepers of all information and being able to utilize this data for their own advertising network. (i.e - Under Apple’s new rules, advertisers will get more ad-performance data for ads bought through Apple than through third parties)
📚Books of 2021
Here are my books to read/finish for the next while
Completed
Educated by Tara Westover (9/10)
Loonshots by Safia Bahchall (8/10)
Range - David Epstein (8/10)
American Dirt by Jeannine Cummings (9/10) [fiction]
We The North - Doug Smith (8/10) - Nice history from a Raptors beat writer
Promised Land - Barack Obama (8/10) - Great perspective; audio book recommended
Tanking to the Top - Yaron Weltzman (7/10) (Philadelphia 76ers “The Process”)
The Color of Money: Black Banks and the Racial Wealth Gap (8/10)
House of Debt - Atif Mian (8/10) (2021)
Nine Lives of Pakistan - Declan Walsh (8/10) - Recap of Pakistani history (2021)
Originals - Adam Grant (9/10) (2021)
The future is faster than you think - Peter Diamandis (7/10)
Blood & Oil - Bradley Hope & Justin Schleck (7/10)
If you’re looking for books to get, I would suggest checking out bookdepository.com or thriftbooks.com (both are cheaper than amazon at times)