Finances

Zoosk's domination of the online dating scene isn't ending any time soon. The online dating site, which first rose to popularity by making romantic links between Facebook users, is preparing to create an important connection of its own - with investors in public markets.

Zoosk was founded in 2007 by Iranian entrepreneurs Alex Mehr and Shayan Zadeh, who met as students at Tehran's Sharif University of Technology. They moved to the U.S. in 2000 and launched the company seven years later. Zoosk acquired users quickly by tying itself to Facebook and the hundreds of millions of users who already used the ubiquitous social networking site to post personal information and photos. It's since branched out to mobile, the most rapidly-growing sector of the dating market, and has raised more than $60 million from investors including ATA Ventures, Canaan Partners, Bessemer Venture Partners and Crosslink Capital.

Zoosk is now taking steps to go public in 2014. The San Francisco-based company has picked Bank of America to lead its initial public offering, along with Citigroup and Royal Bank of Canada. Oppenheimer & Co. and William Blair & Co. will serve as co-managers.

In the $2.1 billion dating services business, Zoosk has a 2.9 percent market share, trailing behind Match.com and eHarmony in the competitive industry. Zoosk currently has more than 40 million active members, a success rate that can be attributed in part to the additional features the site offers. The challenge faced by most online dating sites is that, if their service is successful, their users have no reason to continue using it. Forward-thinking companies like Zoosk are counteracting that problem by offering other social features - like sending relevant discounts to couples or making date suggestions - to keep users coming back.

The approach is working. Close to 4,000 businesses compete in the dating services market, according to IBISWorld, yet despite that heavy competition, Zoosk said in May that its first-quarter revenue topped $40 million and that visitors to the website more than doubled from the prior year.

There's no question about Zoosk's impressive track record, but there are some questions about the success of these kinds of sites' attempts to go public. Following Facebook's troubled IPO in May 2012, there was a lull in social-networking deals. But Twitter Inc.'s debut last month seems to have put some people's fears to rest, and Twitter is now up 89% from its IPO price. Whose footsteps Zoosk follows in remains to be seen.

Four of the biggest names in the dating industry have released their 2013 third quarter financial info. And it's probably a surprise to no one actively involved in online dating that IAC, Meetic, Spark Networks, and MeetMe all saw growth.

IAC

Revenue for Q3 2013 was $756.9 million, a growth of 6% from Q3 2012, the majority of which came from Search & Applications. Websites revenue increased primarily due to the contribution from About.com (acquired September 24, 2012) and CityGrid Media (moved from Local to Search & Applications in July 2013).

IAC also saw growth in Match revenue. Core, Meetic, and Developing revenues grew 7%, 11% and 58% to $118.8 million, $56.3 million and $26.0 million, respectively, thanks to increased subscribers and the contribution of the introduction service Twoo. As of September 30, 2013, IAC had $768.0 million in cash and cash equivalents and marketable securities as well as $580.0 million in long-term debt.

Meetic

At the end of Q3, Meetic, the European leader in online dating, had increased revenue over the first nine months of 2013 by 2.7% to €126.1 million. Meetic's subscribers for the same period of 2013 increased by 72,998 or 9.5% year over year to 840,801 as of September 30 , 2013. Meetic owes the majority of its growth to its online offerings, but mobile is playing an increasingly important role in the company's success.

Spark Networks

Total revenue for Spark Networks grew for the 11th consecutive quarter in Q3 2013. Divided, Christian Networks revenue grew for the 12th consecutive quarter and Jewish Networks revenue grew for the 2nd consecutive quarter. Q3 2013 revenue totaled $17.4 million, up from $15.9 million in Q3 2012. Most importantly for Spark Networks, revenue growth outpaced the growth of marketing expense, meaning company-wide contribution hit its highest level since the first half of 2012.

MeetMe

MeetMe's 10.1 million in quarterly revenue for Q3 2013 was primarily driven by its mobile segment. Mobile revenue reached another quarterly record of 2.9 million, up 65% year-over-year and 12% sequentially from the second quarter of 2013. The MeetMe team is now focused on driving engagement and bringing new audiences to the MeetMe application, with a significant update planned for the first quarter of 2014.

David Clark, Chief Financial Officer of MeetMe, added, "Third quarter results build on the improvement in top and bottom line financial performance achieved in the second quarter. Together with the launch of our new apps, we are encouraged by the start of what is traditionally our seasonally strongest quarter.

Lately, a dear friend of mine won't shut up about HowAboutWe. Every time the subject of online dating comes up, she has to - at least once - talk about how much she's over OkCupid and how much she loves HowAboutWe. And it looks like she's not the only one who thinks the future of online dating is the activity-based dating site - HowAboutWe has just raised $4.2 million in the name of helping singles find their mates.

HowAboutWe is a modern approach to online dating that hopes to appeal to the unique needs of a new generation of daters. Instead of relying on a matching system based around online interactions, HowAboutWe seeks to connect users offline over shared interests and activities. Members post specific date ideas to the site - beginning with "How about we..." - and await responses from other members interested in having the same experience.

The point is to make it easier to meet new people in real life, where the magic actually happens. The deepest connections happen after you've met face-to-face, so why waste time sending messages back and forth when you could jump straight to the good part?

HowAboutWe is also revolutionizing the online dating industry by creating a service that caters to couples. Members who are paired up but still looking for fun activities to keep the love alive get access to a wide range of experiences offered at discount prices. The site's free concierge service can even help members see sold out shows, go on free dates, and plan special occasions.

"Almost all existing online dating sites are oriented towards keeping people online - messaging endlessly and browsing infinite lists of repetition profiles," founders Aaron Schildkrout and Brian Schechter told VentureBeat. "Online dating as a business has a terrible churn problem because these companies lose their most successful customers. We've become the first dating site to provide a meaningful, on-brand service for our happiest members. In doing so, we became the first dating site that doesn't want our users to fail."

That's a nice warm fuzzy thought, isn't it? Sorta?

Now that HowAboutWe has massively expanded its potential user base, it's ready to put those millions of dollars in funding to good use. With the new financing, VentureBeat reports that HowAboutWe plans to scale by adding new products and services, and expanding into new markets. With a total capital raised of $22 million, it sounds like HowAboutWe users have a lot to look forward to.

Perhaps the rise of free Internet porn has come at a cost to some large companies. FriendFinder Networks Inc. (FFNTQ), publisher of Penthouse Magazine and a number of adult entertainment websites, has filed for Chapter 11 bankruptcy.

FriendFinder said that it has struck a deal with debt holders to reduce its debt by $300 million if accepted by the U.S. Bankruptcy court in Delaware. One note holder will get ownership of the sex entertainment business if the plan goes through.

The company built its network by buying and starting up social media, dating, and sex sites such as adultfriendfinder.com (for casual relationships), Amigos.com for Latin dating, and BigChurch.com (aimed at those more spiritual). Together the FriendFinder network includes 8,000 websites with 220 million members and 750,000 subscribers. But they haven't turned a profit since 2008.

FriendFinder Networks was originally formed in 2003 when founders Marc Bell and Daniel Staton purchased the publisher of Penthouse from bankruptcy. A year later they'd planned to launch an initial public offering with $460 million, but when the IPO was completed in 2011, they'd only managed to raise $46 million.

The company had also tried to purchase Playboy Enterprises in 2010, but the deal fell through.

The founders primarily blame the financial problems on the $400 million acquisition of Various, a network of dating sites that didn't generate the revenue expected, and the fact that credit card companies wouldn't process payments from sex website members. Others are looking at the bigger picture of the industry itself.

The question that perhaps the company's founders hadn't planned on was: who needs to pay a monthly fee to look for sex and porn when the Internet (and mobile apps) are rife with free options?

The question of the growing popularity of the mobile platform is one to consider as well. Dating app Tinder has exploded, and FriendFinder was rapidly trying to move its business into the mobile space since roughly 80% of its traffic was migrating from the desktop.

And what about Penthouse? Its flagship business has expanded into European broadcasting, a video business and does licensing deals as well, but surprisingly, the print edition of the magazine is still available even though it's struggling.

FriendFinder isn't the only casualty in the wake of free Internet porn. Earlier this year, LodgeNet Interactive, which provided adult films and video games to hotel guests, filed for bankruptcy, partly due to Internet competition.

Zoosk's dazzling rise to fame is the stuff of online dating legends. Over the last five years, Zoosk has evolved into a leader in the industry, and this year it celebrated a major milestone.

On May 22, 2013, Zoosk announced a company record: revenue exceeded $40 million in the first quarter of the year. That's not a bad way to celebrate the half-decade mark...

And that's not all Zoosk has achieved this year. The first quarter of 2013 also saw these breakthroughs for the popular dating site:

• Zoosk experienced a 116% increase in monthly total unique visitors compared to the same period last year.
• The number of monthly active users for Zoosk's mobile products increased more than 200% year-over-year.

Zoosk believes its success can be chalked up to its unique approach to matchmaking and a strong focus on the mobile market. The site set itself apart with its Behavioral Matchmaking engine, which learns users' preferences by observing their behavior on the site. It continuously improves subsequent matching suggestions as it more thoroughly profiles a user, resulting in increasingly better matches and higher levels of engagement with other singles.

The Behavioral Matchmaking engine is driven by three discovery tools:

• Zoosk's Scientific Matchmaking service, a daily introduction to a potential match
• Carousel, a rapid-fire round of profile pictures
• Search functionality that sorts through the millions of profiles on the site

On the mobile front, Zoosk created a variety of mobile applications to meet users' increasing demands for dating on-the-go. The applications are all optimized versions of the site's experience that are frequently updated to provide better and more sophisticated service. Applications are available for Apple devices on iTunes and for Android in the Google Play store.

Zoosk's commitment to mobile has paid off. It consistently ranks as the #1 dating app for the iPhone and iPad, and in Google Play the Zoosk app has been downloaded more than five million times.

"We wanted to bring a no-compromise approach to small screen dating for users on-the-go," said Shayan Zadeh, Zoosk CEO and co-founder. "So instead of designing our mobile product as an extension of our website, we built a brand new experience from the ground up. This mobile-centric design plus our Behavioral Matchmaking engine equals a powerful formula that is driving user adoption."

Congratulations to Zoosk on their stellar start to 2013. Can't wait to see what the rest of the year has in store...

For more on this dating site you can read our review about Zoosk.

The online dating boom began in 2000, when around 100,000 early adopters braved uncharted Internet territory and dial-up connections to find love on the World Wide Web. Now, according to a Metaflake study, that number has reached 9.1 million in Britian and shows no signs of stopping. Some market players have estimated that in India this number will hit 115 million in three years.

Globally, the online dating market is estimated to be worth $4 billion USD. Two nations in particular, the UK and India, have seen especially steep rises in the popularity of online dating. In India, 6 million singles have joined dating sites and created a market worth over $130 million USD. In the UK, the online dating market jumped 6% to £170 million.

Metaflake credits the success of online dating in the UK to a few factors:

• Meeting partners online has been most successful in secular, well-to-do countries.
• Advertising strategies from rival dating sites have become increasingly aggressive.
• The British are open-minded and willing to take a chance on online dating.
• The UK has a "colourful dating landscape" that caters to all needs and interests.

Adam Sachs, co-founder and CEO of Indian dating site StepOut.com, sees similar changes happening in India. "Dating culture in India is evolving rapidly. Changing cultural dynamics like the increase in average marriage age... are shifting the dating paradigm significantly," he says.

These changing dynamics have made online dating a more socially acceptable option for Indian singles. Dating is now seen as a way to develop a close connection with someone before taking a step as serious as marriage. Internet dating services are valued for the convenience and accessibility they provide.

Despite positive predictions, however, it won't be completely smooth sailing for online dating sites. The marketplace is crowded and competitive, and the landscape is constantly changing. Social media sites like Facebook threaten to replace online dating services as they expand.

The growing use of smartphones is also changing the dating industry. Apps with location-based functionality are capturing more and more of the market, and mobile dating services that are simplified, cheaper versions of their online counterparts are increasingly prevalent.

Though the road may have a bump or two, experts predict that the only way is up for online dating. Metaflake's chief executive, Henning Wiechers, estimates that the UK's online dating market will have expanded by another 5% in 2012, and Indian dating site QuackQuack expects the online dating industry to see an annual growth rate of 20%.

For more current statistics on this industry you can read our Online Dating Facts page. To find out more on where some of these statistics come from for this article you can read IBNLive and the Guardian.