Listing out the unicorns of the past decade, Zoom, Slack, TikTok, Instagram all probably come to mind. Lately, though, I’ve been curious about Grammarly, a company oddly missing from the everyday discourse. Founded in 2009, their last raise valued the company at $13+ billion.
They’ve been left out of the conversation because they have a unique growth story. Popular companies like Slack use direct network effects and have a clear growth loop. As a user, I am incentivized to get you onto Slack to communicate with you, which drives further growth. Comparatively, Grammarly’s growth story isn’t as obvious. There are no direct network effects; I can use Grammarly regardless of whether you use it. It’s not viral by nature; Grammarly is the secret weapon no one wants to admit they need.
So, what worked? Here’s my take.
First, Grammarly started with a niche, paid product.
Many companies start with a freemium model directed towards anyone and everyone. They broaden the top of the funnel to attract more users, relying on network effects and growth loops to build a massive base. Then, they figure out monetization down the line.
Grammarly, by contrast, started narrowly and charged from Day 1. The initial product was paid plagiarism and spellchecking software for universities and students. This narrow focus afforded two benefits:
- They built a tight growth loop within a defined audience. Students (naturally motivated to find easier ways to write better essays) would use the software and tell friends. Eventually, teachers (naturally wanting to read better essays) would promote the tool.
- They learned about pricing and conversion from Day 1. Early on, freemium is a risky approach. You have little data to inform your strategy. The alternative – monetizing backward – is to charge early on and launch a free tier once you understand conversion. That’s precisely what Grammarly did. It took them 6 years to establish a free plan (Wistia was the same). This aligns with Patrick Campbell’s pricing advice, “The best folks who deploy free typically don’t implement freemium until 2-3 years into their business.”
Second, Grammarly piggybacked off your browser.
The browser extension is the most underappreciated aspect of Grammarly’s business.
After successfully building a user base in university settings and learning about conversion, they launched the Grammarly browser extension. Suddenly, Grammarly worked everywhere you went online.
This is important for three reasons:
- They don’t have to convince you to change editors. It works wherever you work.
- No one changes browsers. You might not visit Grammarly.com daily, but you will surely use your browser. The browser extension was a great way to build a long-term relationship and nurture conversion. (Related: The Power of Defaults by Julian Lehr)
- People rarely uninstall browser extensions.
The browser extension increased the number of users pouring into the top of the funnel and gave Grammarly a long time horizon to nurture conversion.
Finally, data network effects propel their moat.
Above, I mentioned that Grammarly doesn’t have traditional network effects and growth loops. That’s not entirely true. They do benefit from data growth loops. Grammarly uses daily user activity to refine their algorithms and make the experience better for everyone else. This provides a moat against competition.
This was particularly true in the early stages when Grammarly would directly ask users to rate the helpfulness of the feedback.
Where They’re Headed Next
The natural question is where do they expand next. My current thinking is that past a certain point, products can evolve in three main directions:
- New market, same product – Expand the existing Grammarly product into new markets (probably by tailoring it).
- Bundling – Effectively launch a new product into the same market and win through bundling it with their existing subscription.
- Sink to the platform level – Leverage the technology powering your platform and license it to other products. You become a platform and expose an API. Suddenly, Grammarly is baked into other products as a first-class citizen (possibly white-labeled).
It’s hard to imagine Grammarly tailoring their product towards a specific market, and I’m not sure that bundling makes sense, either. The most obvious answer is that Grammarly sinks to the platform level. They’ve already made small steps in that direction with the Grammarly API. Maybe Grammarly exists natively in Slack or Figma to help you communicate effectively everywhere.