Online Dating Services: Down But Not Out
By Paul Nicholls
Online Dating sites have enjoyed meteoric growth over many years. This was one of the few paid-content success stories of the dotcom boom. As recently as 2003, total revenue for companies in the online dating market was growing at more than 70% annually. No more. Today online dating is a hectic market; competition is coming from all directions. As a result, online dating's growth has slowed significantly. [Online Dating 2006]
Yes, online dating is experiencing a slowdown. The U.S. industry is expected to grow by nine percent with revenues of $516 million in 2005 coming from consumer subscriptions alone, according to Nate Elliott, an analyst at Jupiter Research. That's slower than the 19 percent growth in 2004. And when compared with a 77% jump in 2003, the latest revenue trends seem cause for real concern. "It's the natural growth curve of the industry," Elliott said. "It took a while for it to gain traction, then we saw several years of explosive growth, and now it will slow down." [Pasha 2005]
According to eMarketer Senior Analyst James Belcher, "So many users found novelty and utility in this application that sites found it easy to first get a critical mass of free users, then convert a small percentage to paid subscribers, which still resulted in plenty of money to go around to many players." [Online Dating 2006] But the industry is now at a growth plateau-a slowdown stage similar to that other new technologies experienced after an initial boom period.
Harvard Professor Dr. Clayton Christenson calls this "an especially precarious stage" for new technologies and growth industries. [Thompson 2005] The classic growth industry life cycle model implies that each new wave of consumers brings with it a new set of expectations that inevitably change the competitive landscape. But pressure to improve performance and simultaneous demand for lower prices intersect, creating an unstable marketplace. In Christenson's model, online dating consumers can be segmented like this:
- Under-Served Consumers-have used online dating and were dissatisfied. Their needs are not met by currently available sites.
- Over-Served Consumers-Have used online dating and were satisfied. Now they want core site functions at lower prices.
- Non-Consumers-Have not used online dating because of cost, computer access, or regarding the sites as irrelevant to their unique needs.
According to Thompson the trends Christenson and others describe will inevitably transform the industry. The over-served will switch to more affordable options while the under-served will demand more innovative solutions. It's a new ball game.
While growth has slowed down, online dating is too ingrained to fade away, said Bill Tancer, general manager of worldwide research at Hitwise. There are currently nearly 1,000 dating websites, he said, and online dating makes up one percent of all Internet usage-in other words one out of every 100 people logging on visits an online dating site. [Pasha 2005]
New competition definitely has a role in the slowdown. Not only is revenue growth tapering as singles flock to specialized online matchmakers, but spending is declining. Meanwhile, growth seems to be picking up at niche sites. According to Duane Dahl, co-founder and CEO of PerfectMatch.com, "As online dating has evolved, the participants have become a lot more savvy, a lot more demanding. I think we're past the stage where the online dater will settle for being in a community of 20 million people." The start-up niche sites not only find it easier to innovate but also to offer a more manageable and more targeted selection. [Seeking 2005]
eMarketer's Belcher added, "Sites now specialize in matching people of specific races, religions, interests and professions, and there are multiple sites competing in each of these niches. Some sites now facilitate webcam-based dates, video-blogging, and other technological marvels."
A recent Jupiter Research survey found that 5% of Internet users paid for online dating subscriptions in the last year, down slightly from 6% in 2005. Industry-wide user conversion rates fell for the first time since Jupiter began tracking that metric. "Although online dating revenues continue to grow, rising prices have kept a large number of users from converting to paid subscribers," said Nate Elliott, Jupiter Research Analyst. "37% of visitors who don't convert say dating sites cost too much, making it their leading complaint." [Jupiter 2006]
Do social networking sites spell the end of dating sites? Not according to eMarketer [2006]: "Free online dating sites, be they social networking or other, are not after the same customers as subscription-based online dating sites. Free sites are pursuing advertisers. Subscription-based online dating sites, on the other hand, are pursuing serious paying online daters." Jupiter Research [2006] agrees that social networking sites pose little threat to the dating industry. Just 14% of dating site visitors who don't pay for subscriptions say they use free sites for online dating instead. [Jupiter 2006]
And, according to AOL's second annual "Love@AOL" survey, online dating works-76% of the singles who used online dating sites reported finding romance, and nearly 60% said they formed long-term relationships. "The leading way to make a date continues to be friends and family, but the second most-popular way to hook up is now online." [Singles Succeed 2006]
Now at a mature stage, online dating sites are in a shake-out period, re-assessing their position. Neither competition nor their own clientele seem likely to put them out of business. Online dating is still an exceptionally good bet for affiliate marketers. The following industry blogs are a good place to keep up with the online dating story as it unfolds during this particularly interesting stage:
- Dating Blog (www.urbanone.net/dating_blog). A closer look at the online dating industry. Analysis on online dating business, industry news and dating site financials.
- Online Dating Industry News (http://dating.corante.com/news.php). Links to current and authoritative dating industry news from various sources.
- Online Dating Insider (http://dating.corante.com). Online dating news and trends from an online dating industry consultant and innovator.
- Online Dating Watch (www.onlinedatingwatch.com). Online dating news, advice, and commentary. The original online dating blog.
Dr. Paul Nicholls is a regular contributing writer for www.eBizTutors.com.
Sources
Enid Burns. "Dating Sites Decline Despite Approaching Valentine's Day," ClickZ Stats 02/08/06.
clickz.com/stats/sectors/traffic_patterns/article.php/3583756.
Jupiter Research. "Jupiter Research Finds Rising Prices Keep New Subscribers Away from Online Dating," Press Release 02/08/06.
http://www.jupitermedia.com/corporate/releases/06.02.08-newjupresearch.html.
"Online Dating Gets Tough," eMarketer 02/14/06.
http://www.emarketer.com/Article.aspx?1003826.
"Seeking: Niche Dating Site," Red Herring 08/19/05.
http://www.redherring.com.
Shaheen Pasha. "Online Dating Feeling Less Attractive," CNN Money 08/18/05.
http://money.cnn.com/2005/08/18/technology/online_dating.
"Singles Succeed Online," eMarketer 02/21/06.
http://www.emarketer.com/Article.aspx?1003824.
Mark Thompson et al. Consumers Are Having Second Thoughts About Online Dating: Are the Real Benefits Getting Lost in Over Promises? (White paper) WeAttract 03/29/05.
weattract.com/images/weAttract_whitepaper_v1_4.pdf.
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