How Grammarly Makes Money [Business Model 2020]

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11 years since being founded in 2009, Grammarly has more than 20 Million daily active users, over 10 Million downloads of its chrome extension and 2000+ institution and enterprise clients.

And all this for a company which did not raise its first round of funding worth $110 Million until its eighth year of operation.

Now, we’re not by any means trying to imply that Grammarly was bootstrapped for the initial 8 years of the startup’s journey — the founders did make some money (nobody knows how much) from selling their first startup (more on that later), which was used to self-fund the company in the beginning.

But regardless of that, Grammarly’s growth has been phenomenal — filled with some now obvious but then forward-thinking & counterintuitive lessons.

In this blog, we will run you through almost everything there is to know about Grammarly from a business perspective — it’s founding and growth story, business model pivots and its current business model.

A ( Not so Short ) Founding & Growth Story 

Even though Grammarly started in 2009, its story kind of began in 2004 when Alex Shevchenko & Max Lytvyn launched a plagiarism checker called MyDropbox.

The product was supposed to solve a problem the two had observed during their university days.

Many of their peers would download essays from the internet but the teachers didn’t even know this was possible, forget learning what their students were doing. 

And we wouldn’t blame the teachers for not knowing because this way back in 2000, the early days of the internet in Ukraine.

By the time MyDropbox was launched in 2004, the plagiarism problem had become evident to the universities, many of which were willing to pay for a plagiarism checking service.

MyDropbox Website
MyDropbox Website [Source: Wayback Machine ]

By 2007, 800 universities and roughly 2 million students were using MyDropbox.

In the same year, Blackboard, the world’s leading education platform at the time, acquired MyDropbox for an undisclosed amount, which according to the founders, was minimal.

However, the deal had a clause which mandatorily required one of the founders to work with Blackboard for two years & prohibited the other from engaging in a similar business during that time.

A few days after the two-year clause ended, the founders got together once again to develop Grammarly.

This time though, they avoided the mistake they made in their last venture.

While MyDropbox undoubtedly had utility, it solved the problem of a narrow, academic use-case, with limited upside.

With Grammarly, the idea was to help everyone write and communicate better — not only making the total addressable market size bigger but also diverse.

Engineers, lawyers, consultants, salespeople, journalists or pretty much any knowledge worker using digital communication would benefit from having a second eye check their writing.

But despite the grand vision, the resources at hand were limited.

So, in the early days the founders focussed on two things: leveraging their existing connections with universities to sell Grammarly; using customer feedback and revenue to improve the product.

What Grammarly's Text Editor Looked Like in Early Days
Grammarly Text Editor in its Early Days

All this while, they had plans to expand beyond educational institutions, to a wider audience, later.

But was Grammarly any different than other existing solutions at the time?

Yes, it was.

While most products, including Microsoft Word, only scanned for obvious grammar and spelling mistakes, Grammarly even handled contextual spelling and style.

By 2012, Grammarly had signed up hundreds of universities and 300,000 students as customers.

In the same year, the company reportedly made $10 Million, which is remarkable considering they were still only three years into the journey and serving a small niche among the billions of English writers around the world.

At around the same time, Grammarly noticed a big uptick in customer segments beyond universities and students, pushing them to overhaul their marketing and product strategy.

Initially, Grammarly’s social media strategy was to create content that appealed to grammar nerds but they also began to create content that would engage digital professionals — like resume writing tips and email writing advice.

The product landing page was overhauled to position the company as the most accurate grammar checker & the social proof snippet changed from “Trusted by 300,000 students” to “Trusted by 300,000+ people.

In 2014, Grammarly took their first steps towards reducing customer friction by launching MS office plugins, accelerating product adoption.

At the time, here’s what Max Lytvyn, co-founder of Grammarly, said,

“Rather than bringing users to Grammarly, we want to bring Grammarly to everywhere people write. 

We’re moving toward a place where our product would sit between the storage of an organization’s documents and be automatically checking documents as people write them.

Unlike most SaaS companies, Grammarly did not take the freemium route early on. 

Instead, Grammarly chose slow, thoughtful, backward monetization.

In the beginning, they charged universities for the service & used the revenue to improve the product. 

Even when they expanded beyond academia, new users had to pay $11.99 to use the service.

Come 2015, Grammarly was well-positioned to bear the financial costs of offering a freemium product. 

The launch of Grammarly Chrome and Safari extensions strengthened the freemium offering, even more, expediting customer acquisition.

Like any other freemium offering, the purpose was to get people habituated to the product and nudge them to purchase the paid plan.

To accomplish their goal, they restricted access to features like style recommendations and advanced grammar checks, while at the same time, made sure users were reminded what they were missing out, every time they wrote anything using Grammarly.

Two years after the launch of the free Chrome extension, more than 8 million users were actively using it. In 2017, Grammarly’s website was revamped to get new users to install the extension right off the bat.

What Grammarly's Website looked like in 2017
Source: Wayback Machine

Even to this date, the first thing Grammarly nudges website visitors towards is installing the chrome extension.

Over the years, Grammarly consistently focussed on reducing customer friction.

At the time of writing, Grammarly can be accessed almost everywhere people write — Microsoft Office apps like Word & Outlook, G-Suite apps like Gmail & Google Docs, Facebook, WordPress, Linkedin & almost any other product people use.

Apps where People can use Grammarly
Source: Grammarly

You can even download the Grammarly Keyboard Mobile App on both Android & iOS, which is compatible with a host of different apps.

2019 was an eventful year for grammarly. The service grew to have 2 Million daily active users & joined the coveted club of startup unicorns when it raised a second round worth $90 Million at a valuation of more than $1 billion.

Grammarly’s Present Business Model

Grammarly makes money by selling premium subscriptions to three different customer segments: individual users, businesses and educational institutions. Apart from that, the company also generates some revenue by selling its human proofreading service.

Let’s have a look at each of the revenue source individually to develop a better understanding of them.

Grammarly For Individuals

At the time of writing, the free Grammarly service only checks for critical grammar and spelling checks, and conciseness. 

With the paid subscription, users get access to several premium features like readability suggestions, vocabulary enhancement suggestions, genre-specific writing style checks & a plagiarism detector that checks more than 16 billion web pages.

Grammarly Subscription Pricing for Individuals
Source: Grammarly

Grammarly sells the premium plan for $11.66 per month (when billed annually), $19.98 per month ( when billed quarterly ) & $29.95 per month ( when billed monthly ).

No prizes for guessing which plan Grammarly wants you to buy.

Grammarly For Businesses

A customized solution for companies that need to maintain brand voice and tone in all their communication, the business plan enables them to create a style guide and ensure that every team member follows it.

Grammarly Pricing for Businesses
Source: Grammarly

The style guide integrates with marketing platforms like WordPress, Facebook, Twitter, Medium; Sales tools like LinkedIn & Salesforce; and support tools like Zendesk, Freshdesk, Zoho Desk etc.

For businesses having a team size of up to 149 members, the business plan comes at:

1. $12.50/member/month ( billed as one annual payment ) 

2. $25/member/month ( billed as monthly payments )

Again, no prizes for guessing which plan Grammarly wants businesses to buy.

For teams larger than 149 members, prices are not publicly disclosed. Interested companies need to contact the Grammarly team.

Grammarly For Education

Targeted at schools, colleges and universities, the education plan gives access to a preset number of people from the institution. More than 1000+ institutions are using the service at the time of writing.

Grammarly Pricing for Educational Institutions
Source: Grammarly

As you can probably see from the pricing image, institutions wanting to purchase the Education plan for more than 20 users need to contact Grammarly for a quotation.

Human Proofreading Service

Grammarly’s AI may be the best in their line of business, but the company also offers a proofreading service for those who want to run their writing by a pair of human eyes.

Grammarly's Human Proofreading Service
Source: Grammarly

Service pricing depends on the number of words & expected turnaround time.

Grammarly Revenue

Since Grammarly is a venture-backed private company, it isn’t obliged to share company financials publicly, and it chooses not to.

But according to a company information aggregator called Growjo, Grammarly’s estimated annual revenue is $59.2M per year. 

Considering that the last two funding rounds have been in 2017 and 2019, we’re guessing that Grammarly is probably burning some cash to grow fast & isn’t worrying about profitability at the moment.

Does Grammarly Sell User Data?

Like any other freemium service, Grammarly users are subject to cookies and other things, but the company has confirmed that it does not sell user data for money. 

In an interview with Techcrunch, a company spokesperson said,

“We don’t sell or rent user data to third parties for any reason, including for them to deliver their ads. Period. Our business model is a freemium model, in which we offer a free version of our product as well as Grammarly Premium and Grammarly Business, which are paid upgrades.”

To be honest, Grammarly’s AI proofread this article, and it corrected us more than a dozen times.

Thank you for taking the time to read the entire article.

If you liked it, you might also like our article on WhatsApp’s Business Model.

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How Grammarly Makes Money [ Business Model 2020 ]
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How Grammarly Makes Money [ Business Model 2020 ]
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Grammarly makes money by selling premium subscriptions to three different customer segments: individual users, businesses and educational institutions. Apart from that, the company also generates some revenue by selling its human proofreading service.
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WhatIsTheBusinessModelOf
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