How Startups can compete in the Online Dating Market
The global online dating market was valued at $6,400.0 million in 2017, and is projected to reach $9,202 million by 2025, growing at a CAGR of 4.7% from 2018 to 2025. This rising popularity has lead to a huge global user population of up to 220M people using dating platforms. It’s a huge and fast-growing market and this factor is probably responsible for the gigantic amount of companies that arise in this segment year after year.
Recently we decided to enter this market in our own company(JoySpot), so I started studying this market heavily to learn how can a Startup penetrate it and be competitive versus titans like Tinder. Among some papers, I found a thesis called: An Analysis of the Online Dating Industry and How Startups Can Compete from Martin Wendel & Emil M. Frandsen. It’s an incredible piece of work so I decided to make a resume in this article, adding up my own knowledge and points of view.
If you don’t have time to read the whole article, I recommend you to go straight to the tips for startups in the end. Hope you enjoy!
The spectrum of companies in Online Dating Market
The online dating platforms can be divided into two dimensions regarding the strategy they use: one is the concept differentiations and another is the market focus and we can see that in the image below. (Observation: This is from 2015 so you might miss 2–3 companies that growth in the last few years).
The Market Focus dimension is about the target customers group of the dating platform, while the most famous players such as Tinder, Badoo, OkCupid or Match.com are mainstream — they have no focus, every type of person can use it — there are a lot of platforms that focus on specific niches (based on specific common interest, religious or ethical, focus on specific type of relationship and so on). Famous examples in this segment are AshleyMadison (made for married people to have affair) and DatingRing (for more long-term relationships).
Concept Differentiation dimension regards the usability and features presented on the dating platform. Generic ones are more old school platforms such as Match.com that’s basically a big database of people that you can search for interesting profiles and then approach them. Most recently, pushed mainly by Tinder we had a revolution on this dimension, with lean profiles, swipe experience and two-sided match. This made a lot of other platforms to arrive in this sense, some may say that swiping/matching like tinder is becoming the new “generic” experience in this dimension — Happn is another great example of a new concept, matching people that cross on the street.
One question that arises at first glance is how this market could be so crowded, how a platform wasn’t able to monopolize it as Facebook did to social networks or Google did to search engines? The reason is that Winner Takes All Dynamic is not so strong in online dating such as it is in other markets. In the next session I’ll dig deeper into this analysis and how can a company be competitive in this segment.
How to deal with Winner Takes All Dynamic in Dating Market?
To identify if a market is susceptible to winner-takes-all dynamics, the three following factors can be used as clues:
- Strong cross-side and same-side network effects
- High multihoming costs
- No strong need for differentiations
Let’s dig deeper in each of these factors regarding dating platforms market!
1. Network Effects on Dating Platforms
Online dating is a two-sided market, also called a “marketplace”, and its value consist of matching the two sides, examples of other companies that have this dynamic is Uber (connecting drivers with customers) and OLX (connecting buyers with sellers).
Dating platforms provide the tools and interface that makes matchmaking possible between their users, and therefore it needs to have minimum viable options for a user to provide a good experience, hence direct networks effects are presented in this market. The value of using an online dating service is zero if there are no other members. In general, the more active members the more potential matches for everyone. Hence, in online dating, the network intensity is very strong.
Of course, both the number of users available to display, as well as the compatibility of the users are factors that determine the success of the site. But online dating platforms do not need to attract a huge amount of people necessarily, instead, they have to attract enough members to ensure significant matches. A smaller database with similar people can in some cases be an advantage compared to a big database with many different people.
In other words, if low amounts of users are available, but the platform can ensure significant matches between these users the experience for users can be awesome. One strategy here is to focus on the niches of more “similar” people, another one is to optimize your matchmaking algorithm. Some niched dating sites (such as Dating Ring) show that it is possible to do well with a smaller but more focused user base (their strategy is to use a human curator to do the matches).
2. Multihoming costs on Dating Platforms
According to a study from 2012, 26% of online dating users visit more than one dating platform in a given month, this is called multihoming factor (people using multiple competitors products at the same time). The high degree of multihoming is not surprising looking at the opportunities for signing up quick, easy and free on most dating platforms. This enables for users to get access to many platforms with no added costs — not too much energy, time or money required to make this transition and use multiple platforms.
For new dating platforms, this is a huge opportunity to attract users and retain them while building up a user base — It’s important mainly to new platforms to have an easy sing up processes, an easy learning curve and to offer a free experience (at least until reach of critical mass) to ensure low multihoming cost and stay competitive in the market.
3. No strong need for differentiations
The success of the many niche sites illustrates that differentiation is valued in online dating. This factors also made easier the winners take all dynamic which is good for new companies. On the other hand, new players need to be aware of this factor and innovate bringing features that might provide a different experience and new ways of bringing value to users (Happn is a great example of innovation, connecting people that crosses in the street).
Complementary products and services could be an unexploited opportunity for dating sites. It is not difficult to come up with services that are needed in the dating process. Dating sites could collaborate with flower and chocolate delivers, romantic restaurants and locations, hairstylists, fashion magazines or even with personal advisors.
Other important factors to pay attention when modelling an online dating platform
Monetization: The 3 revenue streams
Analyzing current online dating platforms, we can see three main revenue streams:
- Subscription: Users pay a fixed amount per month to access the platform as a whole (ex: Match.com) or to enhance their experience (ex: Tinder Gold)
- Transaction: Users pay per transaction in a pay-as-you-go way (ex: Ashley Madson, men need to buy credits to send message to women)
- Advertising: Regular well-known advertising models (Tinder uses it for instance)
The revenue streams can also be divided into other two classes: Enhancing or Unblocking paid features. Unblocking consists of features that are required for the user to complete its “Job to be done” in the platform. Matching.com required subscription to use the platform as a whole for instance, Ashley Madson requires men to buy credits to send messages, these are all unblocking revenue streams.
Enhancing consists of features that can make the user experience better without limiting their usage in the platform, platforms that operate like that is also known as freemium models. Tinder is a great example, it has the following paid features, all of them enhancing features:
- Subscription: Tinder Gold, a monthly fee that made available the possibility to see people who already liked you, gives you a boost, removes advertising and provide some extra configuration options for the app.
- Transaction: Super Likes & Boosts extra packages.
The churn dilemma
Interestingly a dating site doing a good job at getting people in a relationship might lose their members, having a high churn rate. Most people looking for a partner will no longer need the dating service if the online dating platform succeeds in finding them a partner. This could create incentives for dating sites to prevent finding long-term relationships for the members. However, taking such actions would not be wise.
First, such a strategy would lower the value for members and would be likely to result in not being competitive. Second, they might return later in life and third, while the members might leave due to the need being fulfilled, they can be possible advocates for the sites. Single friends of the couple might ask how they found each other and sign up for the dating service. Users share their experience on social media sites and review sites. People ask for recommendations on forums about experiences in dating.
Importance of Word of Mouth and Trust
Word of Mouth is the most important driver of growth to online dating platforms since they all are B2C (business to client) models in need of a massive amount of users, most of the marketing channels costs are punitive (even more if you consider the high competition on this market right now — you don't want to bid ads versus Tinder for instance).
Trust and credibility of not just the reviewers (other users) but also the platforms themselves are extremely important for word of mouth to positively influence consumers to use an app, so you really need to work this out if you want to start a new company.
Tinder, for instance, attracted many users when they aligned themselves with athletes and movie stars. Public Image is also very important for trust, If you are working on a Niche, maybe you can use influencers regarding this niche to do something similar (and maybe even cheaper than Tinder).
In the image above I presented a framework of drivers regarding trust that you should pay attention when modelling a B2C platform such as a dating one. I recommend a deeper read in the thesis (In sections 3 and 6) to learn more details about each one of them.
6 Tips for new startups entering the dating market
1) Consider designing the concept to decrease the network intensity so the size of the user base is less problematic
2) By focusing on a niche, a startup can create a submarket and deliver higher 8value to that specific target group
3) Innovate on the core concept of dating to differentiate from existing sites and gain high word of mouth engagement
4) Screen and verify new members and prevent Spamming
5) Focus on nurturing trust and credibility
6) Attract customers by offering free initial access and introduce freemium inspired revenue models after reaching critical mass
That’s all, folks! If you liked this article and want to discuss anything, please leave a comment. I’m also open to discussing anything directly, just send me a message on LinkedIn or via my Email.
I also want to thank and congratulate Martin Wendel & Emil Maltesen Frandsen for their amazing work on the thesis. They’re the true fathers of this article.
