Kahoot! Acquires Drops for $50M to Expand into Language Learning

Following a $215 million investment from SoftBank to capitalize on growing interest in digital education, Kahoot has expanded its offerings through a strategic acquisition. The well-known company, known for its platform enabling the creation and sharing of educational games, has acquired Drops, a company specializing in language learning through concise, visually-based games.

Kahoot, whose shares are partially traded on the Merkur Market in Norway with a current market capitalization exceeding $3 billion, announced it will pay $31 million in cash, with the potential for an additional $19 million in cash and stock contingent upon Drops achieving specific milestones through 2022. The transaction is anticipated to be finalized this month and represents the company’s largest acquisition to date.

Drops offers a suite of three primary applications. The flagship app, also named Drops, is a freemium service providing language learning for adults, currently encompassing 42 languages, with a focus on vocabulary development through brief, “bite-sized” learning sessions. A second application, Scripts, focuses on the acquisition of reading, writing, and signing skills, supporting four alphabets and four character-based writing systems. The third, Droplets, is designed for language learners between the ages of eight and seventeen. Collectively, Drops has amassed a user base of 25 million individuals.

A contributing factor to Drops’ relative obscurity within the tech industry may be its bootstrapped origins. (The company did participate in the GameFounders accelerator program.) However, it has received recognition, including being named Google’s App of the Year in 2018.

Founded in Estonia, the company comprises 21 employees distributed across Estonia, the U.S., U.K., Spain, Italy, France, Germany, Sweden, the Netherlands, Hungary, Ukraine, and Russia, rather than operating from a central headquarters. This dispersed team structure may contribute to its cost-effectiveness; in 2019, the company reported gross revenues of $7.5 million (€6.3 million) with a 40% cash conversion rate.

To provide further context, Kahoot – also supported by investors such as Microsoft, Disney, and Northzone – reports that over the past year, more than 1 billion players in over 200 countries participated in over 200 million Kahoot sessions. This figure encompasses both individual educational users of its free services and enterprise clients who utilize the platform for purposes such as professional development or compliance training.

“We are delighted to welcome Drops to the growing Kahoot! family as we progress toward our goal of becoming the foremost learning platform globally,” stated Eilert Hanoa, CEO of Kahoot, in a press release. “Drops’ approach to learning and innovative offerings align perfectly with Kahoot!’s commitment to making learning enjoyable through a straightforward, game-based methodology. Drops and language learning represent the newest addition to our expanding portfolio of learning applications for learners of all ages and skill levels. We will continue to broaden our scope into new areas to establish Kahoot! as the ultimate learning resource for home, school, and work, and to make learning truly awesome!”

The COVID-19 pandemic has spurred significant growth in the educational app sector, resulting in a substantial increase in usage over the past year.

For students, teachers, and parents, these applications have provided a means of maintaining connection and continuing education during periods of school closures or reduced in-person learning, in efforts to mitigate the spread of the coronavirus.

Conversely, businesses and organizations are increasingly relying on e-learning solutions to stay connected with employees, foster engagement, and deliver training while many continue to work remotely.

Interestingly, despite widespread limitations on travel, language learning has experienced a particularly notable surge in popularity.

This may be attributed to proactive preparation for future travel opportunities, or simply as a constructive means of occupying time. Regardless of the underlying motivation, the trend indicates a growing interest in language acquisition.

Recently, Duolingo – which also incorporates game-based elements, such as leaderboards and daily streak challenges – secured $35 million in funding at a $2.4 billion valuation, representing substantial growth for the company.

Kahoot cites projections indicating a digital language learning market exceeding $8 billion by 2025 and characterizes Drops as “one of the world’s fastest-growing language platforms.”

“For the past five years, the entire Drops team has been dedicated to developing a novel approach to language learning, and we are only just beginning,” said Daniel Farkas, co-founder and CEO of Drops, in a statement. “We have introduced millions of users worldwide to our playful and dynamic method of language acquisition. Kahoot! is achieving the same for all forms of learning. We are excited to collaborate with a company that shares our mission to bring the Drops platform to game-enthusiastic learners everywhere.”

This acquisition marks Kahoot’s fourth and largest to date. Consistent with previous mergers and acquisitions, this deal aims to integrate new areas of expertise into the platform, such as mathematics education and enhanced tools for managing enterprise users.