Online dating services - review

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  1. Executive Summary

Online Dating Services, once a haven for the desperate and lonely are starting to attract a significant user and revenue base and are growing at an increasing rate. These services now attract over 30 million users a year in the U.S. and soon will be the highest revenue subscription content service on the Internet.

The growth of online personals and many of the industry’s characteristics are similar to those of products such as fax machines, DVD players, and the Internet itself. The main similarity is that the value of these services for each user increases with each additional user. However, many other characteristics hold true as well. It has significant economies of scale, requires highly complimentary products, and displays some semblance of standards and compatibility between its competitors.

Since online dating services have proven to be so similar to other networked goods, much of the knowledge gained by examining these other services can be applied. This means that one can expect these services to continue to grow rapidly, gain mainstream acceptance and that subscription prices will remain low as long as the major services remain incompatible. Further, they likely will remain incompatible for a variety of technical and strategic reasons.


  1. Table of Contents

  1. Executive Summary                                                                1
  2. Table of Contents                                                                        2
  3. Introduction                                                                        3
  4. Online Dating Industry Overview                                                        4
  5. Online Dating Growth                                                                7
  6. Network Characteristics of Dating Sites                                                8
  1. Required complementary products                                        8
  2. Compatibility and standards                                                9
  3. Consumption externalities                                                10
  4. Switching costs                                                                11
  5. Significant Economies of scale                                                13
  1. Decision to Date Online                                                                14
  2. Decision Between Services                                                        16
  3. Conclusions                                                                        19
  4. Bibliography                                                                        21

  1. Introduction

Online dating services have been around since 1995. Computer dating services date (no pun intended) back as far as the 1960s. However over the last three years these services have seen explosive growth. While other dotcoms reached their peak in 2000 and have since crashed, dating sites have seen explosive growth since 1999 both in users and revenue. The industry generated over $50 million in revenue in the first quarter of 2002, 550% year over year growth. This growth has been so fast and successful that many of the Internet companies that survived the crash have turned to dating services for additional revenue and profitability. This explosive growth and several of the industry’s other characteristics are reminiscent of other technologies or innovations. The fax machine, VCR, and the Internet itself have all followed similar growth curves. What online dating has in common with these sites is that they are all examples of networked products or services where each additional user increases the overall value of the good to all the other users.

The following report provides an overview of the online dating industry and its recent growth. It then examines the characteristics of networks and whether these apply to the online dating. Based on these characteristics, it models an explanation for its recent growth and attempts to explain any potential shift in attitudes towards online dating. Finally, this report looks at the competition between services and the likely affect this will have on consumers’ utility, prices, the services themselves and societal welfare as a whole.

  1. Online Dating Industry Overview

The following section provides an overview of what online dating sites are, the major players, industry size and business models to establish a basis for comparing this industry to the characteristics of networked industries.

Online dating services are simply websites that carry a database of singles for other singles to search. Typically users can visit the site and search based on sex, age and often certain characteristics of their profile, for example: “I am a male seeking a female aged 18 to 24 in Toronto, ON. Only show ads with pictures.” [insert screen shots here] From here visitors view a list of matching profiles and can click through on any of these to view the full profile. The full profile can contain one or multiple pictures, various stats on the user (age, sex, body type, sexual or religious orientation) as well as an opening headline, description and clever answers to profile questions. Registered users can then make contact with the user, usually through a messaging or chat system within the site and if the match is successful the relationship moves off of the site into the real world.

Online dating services are big business. The online personals industry generated $53.1 million in revenue in the first quarter of this year. That number is over 5 ½ times the $8.1 million total for that period in 2001. That number will likely continue to grow substantially this year once industry wide figures are available. Revenue at the leading service Match.com more than doubled in the third quarter of 2002 to $33.4 million and this is a company with less than one third of the market.

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Nearly 34 million people visit personals sites each year. The industry is dominated by two major players. Match.com is the biggest site with nearly 6 million visitors per month while Yahoo, at 3.4 million, is the second most popular site, leveraging its large population of web directory and email users. Following well behind these two are a dozen or so fairly evenly trafficked sites (see chart: Major Players in Online Dating).

The business models for most of these sites are some combination of free and paid access. For all the sites browsing the ads is free. However ...

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