The business behind dating apps

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As a 20-something millennial I regularly have conversations with my friends about dating and relationships. Naturally, dating apps, such as Tinder, Bumble, Hinge, and The League come up in conversation. Many of my friends (and myself included) have tried, are trying, or are done trying to use these apps to find a special someone to add to their life.

 

While the social, psychological and societal impacts of these dating apps is up for debate (a post for another day) I’ve become interested and fascinated by the business opportunities that this industry presents. Currently, the online dating industry sits at about $2.2B dollars (as of 2014.) With the stigma of online dating lowering, technology increasing and demographics expanding, the industry looks like it will continue to grow for years to come. IBISWorld estimates there are over 3900 dating sites out there today, and 100 new companies will enter the market each year.

 

I find this industry fascinating because it A) is addressing a problem that I believe many people face and are willing to seek help for and B) there are countless market dynamics that should prevent this from working but yet the amount of dating apps continues to rise Here’s a few points to illustrate what I mean

 

If you’re product is successful, people will leave

If you’ve truly succeeded with your dating app, people will find their soulmate and thus have no reason to come back. Sure, it may take some time for that to happen which typically means you’ll be able to generate revenue off of them for a finite period of time, but in theory, if you do your job well they’ll eventually find someone and leave you. In most businesses, companies want to build long-lasting relationships with their customers, but in the world of finding your soulmate that doesn’t quite apply.

 

It costs a lot to acquire customers

When you start a business, acquiring customers can be one of your biggest challenges. If you don’t have strong brand awareness or recognition you’ll generally turned to paid acquisition channels to find potential customers. This gets tricky (and expensive) for dating sites because the more you pay to acquire a customer the more you’ll have to generate revenue from them in order to have a positive customer lifetime value (and remember, you’re LTV is going to be lower because they’ll eventually leave you) However, due to technology advancements, user interface design and interaction, and general acceptance of dating apps, many dating apps (i.e. Tinder, Hinge) have experienced strong organic or word of mouth from their customers which has enabled them to grow a critical mass of users without having to spend exhorbitant amounts of money on acquisition dollars. One interesting tactic that The League did was it created a “waiting list” for it’s app that people could see. It did this because it wanted to vet every single candidate that joined its community, but it was also a great marketing/branding move that gave it a sense of exclusivity which encouraged others to sign up to join the waiting list. While it doesn’t look like The League is generating revenue, it at least is not spending a ton on marketing at an early stage of its company.

 

Freemium Business Models don’t always work well

The Freemium model (where there is a free version with x features and a paid version with x features + additional ones) is great in theory and is very popular amongst startups. Having said that, the model has its share of flaws, and tends to favor those that can scale and innovate quickly so they can get the economics of the paid users to not only work, but to continuously deliver innovation that brings in new customers. Almost all dating sites and apps have a freemium model, with Tinder being the most recent one to follow suit with its Tinder Plus. While many of these apps (Hinge) have not yet focused on revenue, it will be interesting to see how they plan on scaling and finding ways to generate income.

 

Most of your customers aren’t brand loyal

If you’re on one dating app, chances are you probably are on others. People only have so much time to dedicate to dating, and there’s only so many apps that fit on your smartphone, as such, the competition for eye balls and user engagement is fierce.

 

Innovation and Revenue continue to rise

Despite these business challenges, the number of dating sites and apps continues to rise. The industry has its fair share of hurdles and challenges but so does every industry. And while these apps have the same end goal and many similarities differentiation exists within the industry. Here’s a quick look at what some of the apps have done to separate and differentiate themselves from the competition

The Tinder app has helped many find dates in Provo without the pressure of online dating.

Tinder

A few months ago Tinder rolled out Tinder Plus, a paid version of Tinder that for $9.99 or $14.99 per month allows people to have unlimited swipes, and the ability to swipe and browse in locations that they are not currently residing in. Due to the size and popularity of Tinder, it became very easy for people just to swipe right without much care or concern. By placing restrictions, it allowed Tinder to segment their customers and generate an additional revenue stream.

 

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Bumble

Bumble was founded by Whitney Wolfe, an ex-Tinder Co-Founder, and on first glance looks and operates very similar. The catch: matches only last for 24 hours and the female has to initiate the conversation. In terms of revenue generation – guys have the option to “extend” a match for an additional 24 hours. This signals to the female that he’s interested all while generating some extra money for Bumble. No word on their revenue figures but certainly a creative way to generate revenue early on for the company.

 

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The League

The League is a dating app that’s a bit exclusive – while anyone can download the app, users have to be admitted through a screening process. The process tends to favor those with advanced degrees and strong work pedigrees (see lawyers, MBA graduates, Founders, I-Bankers, PE Guys/Gals, etc)

 

Founded by Amanda Bradford, an ex-Googler and Stanford GSB Alum, Bradford’s inspiration for the app came from the challenges that she and her classmates/friends had with other wide/broad dating apps such as Tinder. Instead of focusing on a broad/wide customer base, The League has narrowed theirs.

A really smart and savvy business decision/marketing move The League made was to create a thorough vetting process/waitlist for those who downloaded the app. Not only did this give it an air of exclusivity (lets be honest, who doesn’t love being part of something exclusive?) but it also has allowed them to carefully construct their dating pool and make the experience for those in the pool as strong as possible. Currently, they just setup shop in New York and are expanding soon to London, and they even have some tips for you on how to maximize your chances of getting accepted.

 

CMB Founders on Shark Tank
CMB Founders on Shark Tank

Coffee Meets Bagel

Perhaps one of the more notable/successful apps to date – they got their fame for when they appeared on Shark Tank because they turned down $30M from Mark Cuban. Thus far, CMB has not only built up a formidable user base, but it’s found ways to generate revenue. Each day, everyone gets one match that they can either like or pass on. If both people like, then they get connected. However, you can also buy another match for the day through their own currency (known as beans) You can also earn beans that you can use to get more matches, by recommending someone to another person, or by engaging with CMB on various social media channels. Lastly, you can also buy beans which you can then use at your own discretion. These are all unique things CMB has done to try to drive both engagement and revenue.

 

Conclusion: Dating Apps are here to stay

At the end of the day, it looks like dating apps are here to stay. While markets/industries will always have winners and losers, it will be exciting to see how this market evolves over the next 18-24 months. In my next post, I’ll walk through some of the strengths and weaknesses I see in some of these apps, and make some predictions of what’s to come. In the meantime, happy swiping!

1 Comment

  1. An in-depth review of popular dating apps | Alex Dea

    July 3, 2015 at 5:24 am

    […] a previous post, I talked about the business dynamics of the dating app market. In this post, I’d like to take some time to explain how some of these apps work provide some […]

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