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March 15, 2006

The Economics of Online Dating Innovation

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Posted by Dave Evans

A new trend is emerging where free dating sites add the phrase Skype on their home page and call themselves the next generation of online dating. Let me say it here once and for all. Starting a new dating or social networking site with a core differentiator solely based on Skype or any other VOIP service will not become profitable to a degree where the business can be considered a success.

Smart companies looking to partner with dating and social networking sites have focused on making simple integration a high priority and kept the cost low, going for market share instead of six-figure licensing deals. Adding in Skype costs as much as the time it takes for developers to add a few logos and a link on the profile page. That's clearly not enough, additional strategy and resources must be allocated to come up with a plan that will actually deliver favorable results.

I read about VerbDate at SkypeJournal. The site is a perfect example of throwing a bunch of Web 2.0 buzzwords into a blender, building 1/2 a website, launching and leaving it that way for six months. A quick search shows the site currently has 55 members. I wonder why? The site is unpolished and inconsistent and the stated goal of the company is to "to kick the incumbents big fat ass!" Then they go on to say they have partnered with Skype, which is bunk.

For two years I've been saying it costs at least $3-5 million dollars to get to the 100,000 paying subscriber mark. No one has refuted this except optimistic startup entrepreneurs who base their entire business model on "new" marketing and branding concepts and pray to the gods of viral marketing.

That's why VerbDate and it's brethren will most likely never succeed. I'm all for supporting two people in the proverbial garage starting up the next big thing, but there is a level of sophistication that a dating site needs to attain before it will be truly be taken seriously by the general public. Most of the press releases and emails I get are from sites that fail to address this important issue.

A question to those of you who run ad-supported sites, let us know in the comments what you consider a successful free site. My general take is that more people + higher quality members&site = greater revenue. I'd like to see if anyone is making more money with targeted advertising on a smaller niche site as opposed to a generic ad network serving of mortgage loan ads on a large free site.

Free social networking sites let members add all sorts of plug-in functionality for free. YouTube and 100 other companies offer free file and video-sharing applications, music players and so on to Myspacers. Most of these features don't run on the social networking site, so the cost is negligible.

Innovation for the dating and social networking industry is good, but at what cost?

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Comments (8) + TrackBacks (0) | Category: Dating Site | innovation | partnerships | startups


COMMENTS

1. John on March 15, 2006 3:42 PM writes...

Dave, have just read your post and though I should respond: While I agree that adding Skype functionality to a site is nice it shouldn't be the only differentiator from the incumbents. Actually we added it because women need a safe way to speak with prospective dates before meeting them. Not sure if you actually looked but you failed to mention, tags, tag clouds, presence, location, google maps mashup and buddy map with a little ajax for good measure. Our site is not six months old, its about 2 months and the public has only seen it for 5 days, ala blogs and we will be adding RSS so people can see new members with matching tags. You were however correct about the two guys in the garage with a dream to kick some ass as that was the goal of two others in our town who started Flickr awhile back, and while there were large well funded alternatives they seemed to have done alright. If your going to dream, dream big! Sorry you didn't see the value in it. thx John
BTW: Skype is actually embedded in our site not linked as you suggested

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2. markus [TypeKey Profile Page] on March 15, 2006 8:26 PM writes...

I spent 11 grand in my first year, mostly on software,hardware, zipcodes etc and stupid things like link buying. I ran the site off my home machine for the first 8 months and then I bought a server and moved to a hosting facility. People in the industry would laugh and scoff at the idea that my site would ever go anywhere..

Today, i've got 600,000 visitors a day making my site the 3rd largest in north america. The site is still a one person company and people still scoff. I certainly didn't spend 3 to 5 million getting there either. Then again why would anyone create a paid dating site these days, you have no chance of making money.

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3. John on March 15, 2006 8:45 PM writes...

Markus,

Your site is actually one of the biggest inspirations behind Verbdate! We salute you and your disruptive model! We don't pay a cashier to talk to someone interesting in the physical world so why do it online? Thanks man and stay cool! John

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4. bw [TypeKey Profile Page] on March 15, 2006 9:23 PM writes...

You have to give Markus credit, he is always on message. I wonder though, if paid dating is dead, why aren't there more successful free dating sites?

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5. John Engstrom on March 15, 2006 9:30 PM writes...

I agree with you Dave. In NYC I'm certain $3M-$5M is necessary to grab 100,000 paying subscribers. I've thought about this skype but honestly the women here in new york are completely uninterested in that software. Instead I'm working with Avaya to leverage their amazing phone system to provide blind conference calling services and voice mailboxes that link to the web. Women here want to use a real phone, not skype. When I explain the process of using skype to a non-skype-user they roll their eyes. When I tell them they can use their existing phone they say "I'd use that." Q.E.D.

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6. markus [TypeKey Profile Page] on March 15, 2006 11:40 PM writes...

I only said paid dating was dead for new enterants. Look at true.com they are spending 40 million a year and going nowhere fast. Match.com and yahoo have a massive network of 100 million users they can recruit at no cost. All major sources of traffic are locked into exclusive deads. What chance does a new paid dating service have?

As for free sites, none of them have a proper management team/funding. But like i said before its only a matter of time till VC's drop 10 to 20 million on a startup to take over the space. Seems to be a common perception out there that they can take a free site and run it up and then pawn it off on someone like fox for a few hundred million.

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7. bw [TypeKey Profile Page] on March 16, 2006 4:35 AM writes...

I would that agree that one can no longer launch a cookie-cutter paid dating site and expect to get rich even if they have the funding (though I think True's failings are due more to incompetence of management than anything else). However, I still feel that there is still opportunity in paid dating for someone with some original ideas and some creativity.

As for free sites, I don't doubt that you are correct in your assessment of the perception of many VCs out there, but do you really believe it? I mean, I'm sure you yourself have gotten your share of offers from VCs and as far as I am aware haven't taken any of them up on them. Though, maybe you are just waiting for the right offer... Personally, I think history has shown that reality rarely ever equals the perceptions of most VCs at the time.

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8. Chris on March 16, 2006 10:08 PM writes...

Disagree about paid dating being dead for new entrants. I started my site not long ago with no cash, no resources. But i have grown it into a decent sized site making more than enough to live comfortably on. How? By building a loyal community, monitoring posts and fraudsters, listening to members, sticking with it. Sure it's not a match.com or anything - and probably never will be. But I will grow it as big as I can with what I have available to me.

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