Online dating services Essay Example for Free

Online dating services Essay 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 industrys 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. Online dating services have been around since 19951. Computer dating services date (no pun intended) back as far as the 1960s2. 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 growth3. 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 profitability4. This explosive growth and several of the industrys other characteristics are reminiscent of other technologies or innovations. The fax machine, VCR, and the Internet itself have all followed similar growth curves5. 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. 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 1/2 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. Nearly 34 million people visit personals sites each year6. 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 users7. 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 users have to register and pay between $20 and $25 in order to post ads or respond to ads or both. Over 93% of online dating subscription prices are in the $5-50 range8. Both Match. com and Yahoo charge to post an ad and respond to ads. Lavalife (the 10th most trafficked site) is free to post ads but requires users buy credits in order to contact other users. Overall 98% of purchases at online dating sites are subscriptions. 54% of those subscriptions are monthly, 22% annual. The user population of online dating sites is about 60% male, 40% female9. The ages of users range from 18 to 80 with the largest percentage (32%) between 35 and 44 years of age. Followed by 24% for 25-35 year olds, 22% for 45-54 year olds and 11% each amongst 18 to 24 year olds and those 55 and over (see graph: age distribution)10. The fastest growing segment appears to be the 18-30 space. In the first quarter of 2002, fully half of the new users of Match. com have been under 3011. This suggests that dating sites are no longer just for the desperate, those over 35 and still single, but have become another source for those with time and looks on their side to accelerate their dating or improve their dating efficiency. 5 Online Dating Growth While spending on online content as a whole has increased, no category has increased more than online dating (see graph: Quarterly Growth of Consumer Spending by Category of Online Content). While the other categories such as business content and research have experienced steady linear growth, the growth curve for online dating is an exponential curve. Not only is it growing but the rate of growth quarter over quarter is also increasing. At its current rate by the time numbers are available for the rest of 2002 it will exceed business spending as the largest category of online spending. It is also the only category of online content that has significant consumption externalities. When purchasing any of business content, research, single player games, news, credit help, sports or online greeting cards, the number of other users of the product does not play more than a minor role in the purchasing decision. There is also plenty of room for the industry to grow in both revenue and users. Soon these services will have video chat capabilities12. People will overcome a lot of their negative perceptions of the practice as the number of users increase and many of these primarily US-based services will begin to expand internationally. Many products are not useful without a complementary product. Portable CD players are useless without headphones, and DVD players require DVDs to play. This is one of the factors that separate network goods from goods such as an apple which can be consumed by itself. Arguably online dating services could be the required complementary product to the Internet. With an Internet connection one needs content to look at, and certainly users of online dating services are required to have an Internet connection, so there is some complementarity here but this connection is somewhat weak. While CDs are needed for a CD player to be useful at all, dating services are not a requirement for the Internet to be useful. Further, even with the rapid growth in online personals, it still lags Internet growth and coverage so significantly that for at least the next little while the overall growth of the Internet will have a negligible effect on online dating when compared to the growth it will experience from existing Internet users. With the requirement many networked goods have for complementary products comes the need for compatibility and standards. The benefits of making goods compatible with others are clear. Consumers can benefit by being able to choose from a number of headphone choices knowing that for the most part (except on airplanes) these headphones will plug into their CD player, stereo, and computer. From a headphone manufacturers perspective it is far cheaper to build for a standard jack than specifically for every device. While there is not a single standard that all online dating services are based on to the point where a profile or other stored information from one service can be seamlessly transferred to any other, several competing platforms are starting to emerge. Nerve. com, after the rapid growth of the personals section of its website, spun the service off into a separate company, Springstreet Networks, which provides a standardized shared match making service for other content providers such as salon. com, bust, boston. com and others14. Match. coms database is shared with licensees including msn. com, nytimes. com and villagevoice. com to name a few. Relationship Exchange is another network that powers the personals services behind. cupidjunction. com, and personals. canada. com amongst others. Even some of the smaller dating sites like people2people. com are licensing their databases to online newspaper sites like sfgate. com. The competition is not necessarily amongst the dating sites themselves but the networks they supply and pull from. However, Yahoo Personals is independent and not licensed to other parties. It is banking on its existing position as the top website on the Internet15 and its large pool of users of its other tools to provide a large enough pool of users. Lavalife also has its own proprietary system and is banking on its unique features and credit based rather than subscription based system. While Yahoo and Lavalife are staunchly independent, the advantages to smaller sites are obvious. A personals site is only as valuable as its pool of profiles that match the user. If the user is unable to find people with the same interests, geography and whatever other characteristics determine a match, the user will not subscribe to the site for very long, nor be enticed to subscribe in order to contact a matching user. The larger the pool of people, the better the selection of people that may match, the more likely the user is to subscribe or purchase credits. 6. 3 Consumption Externalities The increase in value with an increase in users is the fourth characteristic of networked industries: consumption externalities. If there is one heterosexual person of each gender on one of these sites the possible number of connections is only one. However with five people of each gender the number of possible connections is 25. With 100 males and 100 females the number of possible connections is 10,000. Thus the total value of the network, as measured by the number of possible connections, increases by Vn = nm x nf where n is the number of users and m and f indicate male and female respectively.