On Financial Expert we analyse the financial side of everything. This week we look at dating services.
If you haven’t used a dating site or dating app, you’re probably in the minority. These services exploded with the widespread adoption of the web during the 2000s, and more recently their app variants have been downloaded onto more than 500 million phones.
As the phrase goes, there are plenty more fish in the sea. Now have a good idea of exactly how many are out there!
An overview of the dating industry: apps and video chats
The dating industry is a large and mature industry. It was one of the first online businesses that proved itself as a profitable venture, and therefore the industry has seen much interest from investors and IT professionals.
This means that the dating service scene is very competitive, as each service continually tinkers with its application and best business model to provide the most valuable proposition to singles.
Traditional dating agencies are now competing with apps such as Tinder and Bumble. Applications, in their turn, are forced to compete with a variety of browser-based dating web platforms, such as eDarling, Match, Omegle or video chat https://videochatomegle.com/ to get the attention of new users.
The more effective a dating process is, the more money a user will be prepared to pay to access the service. Let’s now compare how different types of dating businesses generate revenue.
The original agency model
The original business model for a dating agency saw agencies charge members a fixed fee for a period of time (for example, 3 months). For this fee, the agency would promise a certain number of dates (e.g. 2 per month). The advantage of this system is that the member of the agency is assured of the number of actual dates they will go on.
When online dating rose to the forefront of the industry, dating websites would charge a monthly subscription fee for access to all of the features. In exchange for this monthly fee, they would usually allow unlimited messages to be exchanged between members. It was all ‘all you can eat’ pass to the site.
The online dating service business model
The downside of this approach is this enables members to contact every single person of the opposite sex on the website, leading to an incredibly high volume of messages for some people to respond to. As people can only go on a finite number of dates, this high volume of activity dramatically increases the relative amount of interactions needed per date. This can also put off users.
The freemium business model
Some dating apps and online video chats employ a freemium approach, which is a new business model you’ll find authors including in more recently published business books. This pricing strategy allows users to use the limited functionality of the app for free each month. This reduces the barriers to entry for the app and enables a fast uptake.
Recognising that some people (determined and lonely singles) get much more out of the app than other, more casual users, the app can then provide additional features designed to increase the number of successful matches and dates, for a fee.
This allows the app to be placed into the hands of as many people as possible while also charging for a service to a select group. This is a clever strategy because a dating website is only as strong as its list of members. By adopting the freemium approach, investing apps found an easy way to grow their member lists while still earning revenue from dedicated users.
The advertising-supported model
The final business model is to offer a completely free service and monetise the daily web traffic on the dating platform through display advertising.
As a completely free service, users will show less hesitation about signing up because they won’t have to provide payment details.
This type of dating service has many parallels with a social media company because the user interface is effectively the same – allowing users to interact with each other via a social network that exists exclusively on the platform.
Display advertising is not as lucrative per user as a subscription model, which means the business will have to keep costs lean to remain profitable. Such websites may make use of open source code to avoid having to reinvent the wheel when building the website.
Because revenue is directly correlated to user time spent on the site, an advertising-supported business model will care deeply about the level of engagement it sees from users. It may use notifications or emails to remind the user to check their messages on the platform. Savvy software engineers may also try to design the site to take advantage of the dopamine system to keep users scrolling and clicking in a single session.
The peril of excellence
A moral dilemma faced by many dating sites and video chats is the realisation that when a user finds an excellent match and finds love, they will cease use of the service.
Similar to a driving instructor, the better the service is, the shorter the period of time a customer will pay for.
This is happily offset by the positive word of mouth that a successful relationship that sparked online will generate for the dating service. If a friend hears that another friend found genuine love through the service, they will be quite likely to give it a try themselves.