Facebook Entering the Market

While it might become more difficult for smaller players to succeed, the industry has been abuzz since Facebook announced its foray into online dating. Facebook users will soon be able to elect to create a dating profile on Facebook, and since Facebook has so much data on its users, such as mutual friends, dating preferences, and common interests, it claims it should be able to deliver better matches. Users will be able to browse events in their city, but their activity and dating profiles will only be visible to others also utilizing the dating feature. The feature will be free and will span all groups, aiming to make “meaningful connections.” Facebook’s dating service will start testing later in 2018.

Still, Facebook could face some obstacles in building enough separation between the dating service and the legacy social network; some users might not like having both activities live on one app. And, Facebook has failed many times before, including Snapchat copycat apps Slingshot and Poke, as well as Room, which was meant to be a pseudonymous app that allowed users to create forums about any topic.

Facebook’s entry into the dating world took Match Group investors by surprise, believing them to be insulated from competition from Facebook, Amazon, Netflix, and Google (FANG). And, among the Match Group’s many properties, Match might be the most vulnerable to Facebook. Match charges a monthly fee of $40, while Facebook’s offering will be free of charge. The announcement sent Match’s stock price plummeting 22%. Joey Levin, chief executive of IAC, Match’s parent company, responded to the news with a jab: “Come on in. The water’s warm. Their product could be great for US/Russia relationships.” Amanda Ginsberg, president at Match, noted that Facebook has always actually been competitor since it’s always been another place for people to meet. If Facebook sticks to simply helping people find events and groups to connect at, there may not be as much overlap between the two services. On an earnings call post-announcement, Ginsberg also pointed to the fact that only a quarter of Tinder users still rely on the Facebook platform to access the app. At another point, Ginsberg indicated that users might be wary of their privacy with Facebook, pointing out that less than 5% of Match’s revenue while Facebook’s is 98.5%.

Other apps have indicated that they might actually move closer to Facebook. For example, Bumble, founded by a former Tinder executive, said they had already reached out to Facebook regarding how to collaborate. And, “One thing everyone seems to agree on is that Facebook’s effectively endorsing online dating will be a huge legitimization event for the industry,” says Jefferies Internet analyst Brent Thill. According to Amanda Bradford, chief executive of The League, an elite dating app, “Facebook is validating that dating is a high-tech industry with really interesting and hard problems to solve. I don’t think Match looks at it that way,” she said.

The Online Dating Industry Business Model

So, how exactly do dating apps make money while keeping in mind the importance of utility to the user in the space? In general, the business model for dating apps falls into three broad categories: subscription plans and freemium, which utilize advertising and in-app purchasing.

Membership Subscriptions

The subscription model is the oldest model in the dating app sphere, requiring users to pay a fee to use the app for a set period of time (usually a week or a month). The payments are typically recurring. It’s a higher barrier to entry for use. The most prominent example of such is Match, which charges users $40/month to access the site. These sites are focused on finding people a serious relationship and tend to skew towards an older population who are willing and able to pay. Zoosk, eHarmony, and Chemistry, and Our Time are also paid dating services. Typically, the paid subscriptions are cheaper by the month if the user commits to a longer period of time. For example, eHarmony charges the following: $ for six months, $ for 12 months, and $ for 24 months.