Finances

At the end of 2012, dating site Hinge had recently launched and was overshadowed by the popularity of dating app Tinder. Unsure of how to proceed with less than $32,000 in the bank and only a few thousand users according to Business Insider, Hinge decided to bet big on the mobile platform.

"We made some business assumptions that turned out to be wrong," Hinge CEO and founder Justin McLeod told the news website. "We were like, 'This thing is running out of money, and we need to do something drastic."

In what seems to be a spur-of-the-moment business decision, McLeod and a couple of developers holed up for a few weeks and launched a mobile version of Hinge on February 7th of 2013. But the launch wasn't as smooth as expected - Apple at first rejected the app, which caused many sleepless night for McLeod and his company. They had planned a huge launch party in Washington DC where the app first launched, and until the morning of the launch party, there was no app available.

The launch party turned out to be a success, and more people signed up right after it than had signed up for the beta in all of 2012. It seemed Hinge struck a chord with users where Tinder left them feeling insecure - especially women. Hinge does not just match users based on location like Tinder does (which means a lot of random profiles get into the mix) - you only get matched through your circle of Facebook friends of friends, so everyone you meet on Hinge has some kind of link to your circle. This security has been particularly attractive to female dating app consumers.

McLeod is not about to sit still. He is grabbing a good portion of the dating app market share, and expects to compete heavily with Tinder for its core user base. But he's taking things one step at a time.

Instead of launching his app nationally, he has launched city by city, building up a solid user base based on demand before he moves into a new market. Also, potential Hinge users must be invited by current Hinge users - adding a level of exclusivity and security to the app.

Hinge is now one of New York's hottest startups. Although Tinder is much larger (it makes more matches per day than Hinge has in its entire history), McLeod's company is starting to steal some Tinder users. It has expanded to 20 cities including Los Angeles, San Francisco and Washington, D.C. It uses a waitlist to assess demand in other cities, then launches when a few thousand people have signed up.

"There is no shortage of companies that have tried to build what we've built," McLeod says to Business Insider. "But we're using the organic, city-by-city method, which I think is the biggest thing ... We're a utility to help users meet great people in the flesh as effectively as possible ...We want to be a house party that has a really good host."

Online dating sites like OkCupid and Plenty of Fish have had a free model for a long time, which has managed to expand their membership databases and make them tough contenders with paid sites such as Match.com and eHarmony. But now that free dating apps like Tinder have entered the picture and taken the dating world by storm, the paid dating sites have seen not only a decline in membership, but also in revenues.

Is online dating on its way out?

According to a recent article in The Economist, paid online dating sites have reason to worry. In the article, The Economist points out Cupid, who runs subscription-based dating websites such as Cupid.com, UniformDating.com, and LoveBeginsAt.com, announced a $4.9 million loss in the first 6 months of 2014, up 20% from last year. The number of members has dropped, too. At the end of 2012, Cupid’s sites had 113,000 paying members, but by June 2014, they had just 48,000.

While this is a disturbing trend for online dating sites like Cupid – which haven’t really taken off like other paid sites Match.com and eHarmony – it could weed out many contenders in the online dating market over the next couple of years. However in contrast to Cupid's earnings, eHarmony recently reported incredible subscriber growth and better earnings than they have seen in years, due to focusing on long-term relationships and technology that they market as extremely valuable for finding the “right” match.

But what about popular free dating apps and websites like Tinder and old-timer OkCupid? They have attracted users because of their easy set-up and accessibility. They have made online dating less intimidating, (although a little more sketchy according to some users). Are they responsible for the decline in companies like Cupid? 

Not necessarily. Even free apps and websites aren’t so free anymore.

There has been a shift for the free dating apps and online sites to offer “freemium” services – that is, additional features to the basic service but for a price. In the current online dating market, revenue growth needs to happen for investors to remain interested, and that means charging for services once the user base is built. Tinder recently announced that it will launch a premium paid service in early November, while the basic features of the app will still be free. OkCupid started with a freemium model a while ago, charging users who want to filter profiles according to user preferences, or to be able to review and see reviews of other members.

Still others like eHarmony are adding more personalized matchmaking services at a very high price – thousands per year – for those who want a relationship but would like someone else to do the heavy lifting. eHarmony has not reported numbers to see the success of this particular service.

So what does the future look like for online dating? One thing is for sure: free models likely won’t last forever.

According to Bloomberg News, the popular dating website Zoosk is scheduled to go public. The company filed earlier this year, but the latest stock market volatility might delay their offering until 2015.

Zoosk has long touted itself as a major contender in the online dating game due to its large international user base, alongside brands such as Match.com and OkCupid. The company has more than 27 million members across 80 countries, and the online dating market is reported to be worth $1.4 billion.

The appeal to investors goes beyond the revenues to be had in the online dating market. Zoosk company executives are betting on their extensive user base and tracking technology to help leverage their value. Unlike many online dating websites that rely on lengthy questionnaires and profile descriptions, Zoosk’s technology is purely behavior-based. That is, when users of the site navigate through profiles, send messages, or set filters to view other members, Zoosk is tracking this data and responding by providing matches that have similar behavior or seem most compatible. In other words, they are honing in to what users really want by seeing what they actually do online.

The more a user interacts with other members in the Zoosk community, the more Zoosk learns about that person to give them better matches. To the company’s benefit, it also gives them a wealth of data about their users, which is a valuable asset for investors.

Zoosk is also integrated so users can log in no matter what platform they are viewing on – phone, laptop, iPad or tablet, and is the #1 grossing online dating app in the iTunes store, according to its website. But its marketing expenses might be cutting into its revenue.

Website SeekingAlpha.com has been speculating about the opening price the company will decide upon, based on current statistics. Zoosk’s options granted in April 2014 had an exercise price of $7.72, so SeekingAlpha.com assumes the pricing discussions are in the range of $8-$16, which might not be an incentive for investors looking for a deal (and also looking at how the company can bring in more revenue). Right now, the dating app is free, but members pay to use features like messaging, chatting, and connecting with viewers who have viewed their profiles.

The opening price of the company’s stock is a matter of concern, but what does it mean to go public during such a risky market?

“Nobody wishes they went public today or over the last week,” Max Wolff, the chief economist at Manhattan Venture Partners, an investment firm focusing on late-stage private technology companies, told Bloomberg. “A regular bout of intense selling, like we’re seeing now, makes people feel like it’s smart to stay private longer.”

So the next move is up to Zoosk, but the company anticipates that investors are willing to bet on it.

Please read our Zoosk review for more information on this service.

I could say something about how hard IAC/InterActiveCorp is trouncing the competition, but…um… It hardly has any competition. The media conglomerate, helmed by Barry Diller, has been killing it in the online dating realm for years and shows no signs of stopping.

Thanks to its two massive dating sites, Match.com and OkCupid, IAC was already the biggest player in the game when it decided to shake things up last December by creating a special division for its online dating holdings called the Match Group.

This year, IAC has made more powerful strides in its quest to dominate online dating. It increased its majority stake in Tinder, the mobile app at the top of the mobile dating heap, and acquired most of the Brooklyn-based dating site HowAboutWe.

Slowly but surely, IAC has bought its way into the dating market. By the end of 2013, IAC reportedly hosted 30 million active users throughout its dating properties, 3.4 million of whom are paying subscribers. The Match Group is now responsible for approximately one quarter of IAC's total revenue. And they're not shy about singing their own praises.

“We are not just the acquirer of choice,” said Sam Yagan, chief executive of the Match Group, “we are the only acquirer.”

Investors, on the other hand, are a little more wary. Analysts are convinced that online dating's growth is likely to slow, despite the fact that the market has never been stronger in the US or abroad. The primary bump in the road is free mobile dating services, which are making it increasingly difficult for other dating services to generate a profit.

Mobile dating now accounts for around 27% of dating site services. As mobile audiences grow, dating sites are finding it challenging to turn those users into paying members. They are also challenged by a crowded market, which becomes more congested all the time as various niche sites pop up. Although many don't last for long, they're still successful in drawing audiences away from larger, more general dating sites.

With that in mind, IAC’s future may lie in Tinder. So far the app has put growth above revenue, but it is estimated that Tinder could eventually earn $75 million a year. First, the company has to figure out how to monetize it without losing users or slowing growth. Yagan is feeling positive about the future.

“It is not a winner take all dynamic,” he said. “There is a lot of concurrent usage. Unlike a car, the majority of online daters use multiple products, so you want to have a portfolio — a multibranded approach.”

Breakups are never easy, especially when it means losing your job. Spark Networks, the company behind dating sites like ChristianMingle.com and JDate.com, has announced that it's cut its workforce and has made substantial progress in expense reduction initiatives. The measures are expected to save the company $4.5 million to $5 million a year.

Although Spark did not disclose exactly how many jobs were cut, the company had previously reported that it had 201 full-time equivalent employees as of December 31. The company expects to incur pre-tax cash charges of approximately $1.3mm for severance benefits and other related expenses.

The cuts come at an interesting time for Spark Networks. Lately, its sites have seen an increasing number of their customers turn to competing services. The company has also undergone a number of recent changes in its corporate structure. David Hughes, formerly chief executive at a digital marketing firm in West Los Angeles, resigned as a director after joining Spark Networks’ board just six months prior. He will be replaced by Jonathan R. Mather, a former Netgear chief financial officer.

Hughes’ exit comes only two months after a very public ousting of four of Spark's six directors (including Chief Executive Greg Liberman). The hope is that a fresh crop of directors will be better able to help the company rise above the competition in difficult times.

Free dating sites like OkCupid and mobile apps like Tinder are dominating the market and have made life difficult for services like Christian Mingle and JDate. Spark Networks experienced a 10% drop in revenue during the second quarter, to $15.8 million. The company reported a total of $29 million in net losses over the last three years.

Looking to future, Spark Networks plans to head back to basics. It's putting its focus on three things in hopes of boosting subscriber count and revenue:

1. Upgrading its product offerings
2. Improving its processes for subscriber acquisition, retention, and renewal
3. Refining its marketing strategy

"Much has been accomplished over the last 30-days to refocus the business on its core properties and to drive operational efficiencies,” said Executive Chairman Michael McConnell in a statement.

“Moving forward, I believe the opportunity to profitably grow our business is significant and we are prepared to execute on strategic growth initiatives that meet our return on capital hurdles. Further, the team is operating with a sense of urgency and commitment to drive improvements in all areas of the business. Importantly, I am confident in the resilience and resonance of our brands within our targeted communities."

A recent report of Tinder’s financial worth shows that its users aren’t going away anytime soon. The massively popular dating app is poised to increase its value and market share further over the next year. According to Market Watch, Tinder is growing at such a rate that Barclays predicts its valuation will reach $1.1 billion by the end of 2015, adding to IAC’s current $5.68 billion market cap. IAC owns many of the most popular dating sites, including Match.com.

What makes its value so high, considering the app is free for download? The answer is in the sheer number of users who download the app. As with most online dating sites, perception is key: the more users a site has, the more people will gravitate to it because they think their chances of getting a date, relationship or even hook-up increase.

Tinder’s popularity has taken off thanks to younger daters who embraced the mobile technology and liken Tinder to a game that is easy and fun to use. Plus, it has taken the stigma that is part of online dating away, because the app is mainly to support single people meeting each other casually as opposed to those looking to find serious relationships.

Tinder’s popularity is not just PR buzz. Its growth in the past year has been explosive, with 750 million swipes per day reported in February of 2014, up from 5 million in December of 2013. Today, it manages more than a billion swipes per day (resulting in 12 million matches each day). According to Market Watch, Barclays expects Tinder global daily active users to reach 20 million by April, or 40 million on a monthly active user basis. It also expects Tinder to generate as much as $180 million in revenue in 2015.

How Tinder will get this kind of revenue is unclear. Lately though, they have been floating a few ideas, including a “freemium” service where basic use of the app is still free but restrictions are in place that can be lifted for a fee - like the number of matches you get, or how many photos you see, or the ability to communicate. The founders don’t want to advertise on the app, but they are open to partnerships that would generate revenue from “real world behavior,” though they don’t define what that looks like. They are also focused on the age of Tinder users, and how they might evolve in their dating preferences as they get older. Right now, Tinder is mostly a product that young people use, especially teens and young twenty-somethings - those who might later graduate to a more serious pay service like Match.com.

Eyeballs are currency however, at least to investors, who see Tinder as a golden opportunity. For more on this dating app you can read our review of Tinder.