A LABOUR OF LOVE - ONLINE DATING IN THE AGE OF MOBILE AND SOCIAL MEDIA - GP Bullhound
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INDEPENDENT TECHNOLOGY RESEARCH
SECTOR INITIATION NOVEMBER 2012 ONLINE DATING
A LABOUR OF LOVE – ONLINE DATING IN THE
AGE OF MOBILE AND SOCIAL MEDIA
Industry Being Re-Energised by New Entrants
As one of the long-standing Internet verticals, online dating is currently being
re-energised by a flurry of new entrants looking to capitalise on (i) the
acceptance of online dating, (ii) social media’s ability to expand the market
beyond traditional dating services, and (iii) mobile’s ascendance to becoming
a key pathway to consumer services.
Through the proliferation of social media and the ubiquity of mobile Internet
the online dating industry is adapting to cater to changing consumer needs.
Some well-established players are pursuing innovation and growth through
acquisitions and a fresh wave of start-ups are looking to capitalise on a rapidly
evolving and potentially much larger market.
Three is no Longer Company…
With the advent of social media, a new online dating category called “social
discovery” is starting to emerge looking to leverage social graphs, integrate
friend’s recommendations and setting up casual events with people that share
similar interests.
With the boundaries between online dating in the traditional sense and social
networks quickly becoming blurred, we think the online dating sector is set for
strong growth, driven by the increasingly social dimension of online dating and
the ease and convenience of mobile dating.
Is Mobile The Killer App?
Mobile is shaping the way singles interact with online dating services as the
mobile phone is ideally suited to leverage the pervasive nature of an
individual’s digital life. Mobile adoption has been rapid in online dating, with
30% of all eHarmony traffic now being originated from the mobile, 40% of
Match.com log-ins stemming from the mobile, and 68% of all Badoo log-ins
coming via the mobile. CLAUDIO ALVAREZ
claudio.alvarez@gpbullhound.com
In the US, the nascent mobile dating market is estimated to be $200m+ in London: +44 207 101 7571
2012 (30% YoY growth) and in Germany it is forecast to reach $40m+ by
2012, with mobile dating penetration across Western Europe estimated to be MANISH MADHVANI
manish.madhvani@gpbullhound.com
around 10%.
London: +44 207 101 7560
ALESSANDRO CASARTELLI
alessandro.casartelli@gpbullhound.com
London: +44 207 101 7594
Important disclosures appear at the back of this report
GP Bullhound LLP is authorised and regulated by the Financial Services Authority in the United Kingdom
GP B ULLHOUND – ONLINE D ATING – A LABOUR OF LOVE
TABLE OF CONTENTS
The Evolution of Online Dating ................................................................................ 2
Introduction ........................................................................................................ 2
Dating Before the Internet ................................................................................. 2
The Birth of Online Dating – A Serious Affair .................................................... 3
Niche Verticals – An Attractive Market .............................................................. 4
Europe Joins the Party ...................................................................................... 5
Monetising Online Dating .................................................................................. 6
White Labelling .................................................................................................. 7
Market Size and Growth ............................................................................................ 8
The Rise of Social Discovery.................................................................................... 9
Social Dating: A Natural Evolution from Social Networks and Online Dating . 10
Social Dating 2.0: A New Crop of Players ....................................................... 13
Challenges Ahead for Social Romance .......................................................... 14
Dating has Become a Key Category in Mobile ..................................................... 16
Mobile Dating Usage Rising Sharply ............................................................... 16
Incumbents and New Players are Pursuing the Mobile Dating Opportunity ... 18
Mobile Dating: The Challenges ....................................................................... 20
Selected Company Profiles .................................................................................... 21
Selected M&A Transactions ................................................................................... 26
Selected Private Placements and IPOs ................................................................. 27
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GP Bullhound LLP
GP B ULLHOUND – ONLINE D ATING – A LABOUR OF LOVE
The Evolution of Online Dating
Introduction
Services aimed at connecting individuals and enabling them to find partners and start
relationships have existed for as long as living memory. The oldest form – introduction by
relatives – has been the preferred method for centuries and continues to be available today.
Yet in more recent years a series of dramatic changes have fundamentally altered how
singles enter the dating scene and find partners. In the 1900s rising economic prosperity,
urbanisation and increased life expectancy, coupled with the widespread availability of
contraception and the social and sexual liberation of the 60s, brought about a seismic shift in
attitudes towards love, sex and marriage, and consequently dating. In the last few decades
however it is technology – in particular the Internet – which has been the agent of change.
Dating Before the Internet
Before the Internet, dating services were obtained in person through dedicated
intermediaries – matchmakers and introduction agencies. These intermediaries controlled
and charged for access to pools of prospective partners, the size of which were limited by the
depth of the intermediaries’ respective networks. The matchmaking process was fairly
cumbersome and time consuming, as new clients and prospective partners all had to be
assessed in detail to provide the highest chance of success. It was also expensive.
The other route to romance for lonely hearts was to list adverts in the personals sections, on
radio shows, or on TV through dedicated dating channels. Despite being cheaper and
quicker than the matchmaking route, this method was also less than satisfactory – success
was dependent on Mr. or Mrs. Right happening to read the relevant paper or tune in on the
day of the advert, and few people were prepared to pay for repeat listings.
Moreover, both of these methods suffered from a general lack of social acceptance – for
most people, paying to find love was seen as a last resort, not a first port of call. As a result,
these conventional dating channels remained a niche and fractured market, with a blend of
small local agencies and media groups functioning at different levels of the market and
operating under different revenue models. Yet with the arrival of the Internet and the digital
age, all this would change.
EXHIBIT 1: GLOBAL GROW TH IN SINGLES POPULATION AND ONLINE SINGLES
Global Singles (m) Global Online Singles (m) % of Americans who met their partners online
331 23.2%
99
19.3%
69
10.9%
277
3.8%
2.1%
0.02% 0.06%
2011A 2020E 2011A 2020E prior to 79-88 89-93 94-98 99-03 04-06 07-09
'78
Source: Forrester Research, Euromonitor International, Stanford University and City College of New York, GP Bullhound
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GP B ULLHOUND – ONLINE D ATING – A LABOUR OF LOVE
Some of the key drivers that have led to the uptake of online dating are: a rapid rise in the
global online population, a rapid rise in number of single-person households, improved user
functionality and the fading away of the stigma attached to online dating.
The Birth of Online Dating – A Serious Affair
The online dating industry was established in 1995 when Match.com and
AmericanSingles.com were launched in the US. Match.com took a more traditional approach
to dating online through matchmaking (i.e. pairing people up dependent upon their personal
profile and goals) and AmericanSingles.com took a much more casual approach by allowing
members to search its database by gender, age and location.
In 1994, when only about 5% of the US population had Internet access and the Internet was
still in its early stages, an entrepreneur named Gary Kremen purchased – from the US
government – the Match.com domain name for $2,500. In 1995, he founded Match.com as a
way to inject efficiency into the traditional matchmaking model. Before Match.com Gary
started a personals classified business that primarily used premium phone numbers to
engage clients. However, he found the phone service inefficient, and thought if he could
create an online database of personal advertisements it would allow people to find potential
partners themselves more quickly, effectively and, most importantly, anonymously. Given the
early stigma around online dating, and the type of users that Match.com was trying to attract,
it was paramount that the service was able to guarantee anonymity but still allow users the
ability to have meaningful interactions. Match.com quickly grew to be one of the leading
players in the online dating space and was sold to IAC in 1999 for $50m. Today, Match.com
generates revenues of over $500m, has over 2.7m subscribers and over 6m unique monthly
visitors.
EXHIBIT 2: ONLINE DATING UNIVERSE (REPRESENTATIVE)
High
Matchmaking
Traditional Online Dating
Pricing
Casual
Niche Dating
Low
Broad Target Group Focus Narrow
Source: GP Bullhound
The other well-known entrant in the online dating market was eHarmony, which was founded
in 2000 by Neil Clark Warren, a psychologist and author of relationship advice books. Neil
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GP Bullhound LLPGP B ULLHOUND – ONLINE D ATING – A LABOUR OF LOVE
developed a proprietary model of compatibility which is at the core of the company’s
matching system, and which differentiates its matching service by what eHarmony describes
as “a scientific approach to a deeply personal and emotional process.” eHarmony uses a
proprietary algorithm to analyse answers and users’ behaviour on the site in order to
increase the chances of a successful match – hopefully leading to marriage. Because of
eHarmony’s lengthy sign-up assessment process and tailored introductions model (e.g. it
normally takes an individual 40 minutes to complete the introductory questionnaire), it was
able to mitigate the problem many online daters had of being unable to find serious
relationships due to lack of compatibility and information.
Because of eHarmony’s positioning as a site for “the serious relationship seeker”, it was able
to garner a higher proportion of female users and monetise them at a premium compared to
Match.com. Like Match.com, it grew rapidly to become a multi-million dollar company, and
today boasts over 3m unique monthly visitors.
Niche Verticals – An Attractive Market
Serving a wide audience was how the online dating market initially expanded – so as to
benefit from consumer adoption – but as the market expanded, players focusing on niche
verticals started to appear. A number of companies began to make headway by targeting
niche markets, such as same-sex relationships, casual encounters, and specific
demographics filtered by education, wealth, race, occupation and even body weight. In 1997
for instance, Spark Networks was created, launching JDate.com, an online dating service
aimed at Jewish singles, and expanding to over 30 diversified sites. FriendFinder Networks
also successfully combined specialisms with scale, launching over 25 targeted portals to
date which together attract over 2m unique monthly visitors.
Niche verticals became attractive to new market entrants as they could tailor their consumer
proposition to a very specific target group and hence be very effective at acquiring customers
through more direct marketing channels. According to online dating consultant Mark Brooks,
in the US 44% of the market was comprised of niche sites in 2009, up from 35% in 2006.
Jdate.com has demonstrated the willingness of consumers to pay a premium for targeted
dating sites. It has been able to generate ARPU of $25 with a contribution margin circa 90%
throughout the last nine years as it has grown revenues from $8.4m (2002) to $27m (2011).
EXHIBIT 3: AVID LIFE MEDIA’S RAPID REVENUE AND PROFITABILITY GROW TH
42% CAGR 59% CAGR
$57m
$28m
$19m
$8m
Revenues EBITDA
2009 2011
Source: Company information
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GP Bullhound LLPGP B ULLHOUND – ONLINE D ATING – A LABOUR OF LOVE
The other interesting niche market that has started developing is the casual encounters (i.e.
cheating) market. The biggest player in this market is Avid Life Media – the owner of Ashley
Madison. Ashley Madison specifically targets individuals in relationships looking to have
affairs, and since its launch in 2002 has attracted more than 15m members in 25 countries.
According to the company a new person is said to join every six seconds. Ashley Madison is
also highly profitable as it manages to charge a monthly subscription fee of $49.00 in
addition to value-added-services to help users promote themselves and communicate with
other members. In 2009, it estimated that the business generated EBITDA of $8m (26%
margin). It has grown EBITDA to $19m by 2011, corresponding to a CAGR of 59% and an
EBITDA margin of 33%.
Europe Joins the Party
Until 2001 the burgeoning online dating market was largely confined to the US – then it
began to expand globally. Before 2001, there was only one online dating player – United
People – established in 1996 in Germany. United People was acquired by Scout24 group in
2000 and changed its name to FriendScout24. In 2001, two other players entered the
European online dating market – Meetic and Parship. Meetic was founded by Marc Simoncini
(a well-known French entrepreneur responsible for iFrance – sold to Vivendi for €182m) and
started in its home market of France and then quickly expanded to other territories in Europe
through organic growth and acquisitions. Meetic made five European acquisitions between
2005 and 2009 – eFriendsNet, Lexa.nl, DirectDating.com, Neu.de and Match.com
International. The last transaction – done in 2009 – saw Match.com become a minority
shareholder in Meetic and this would ultimately lay the foundations for Match.com acquiring
Meetic in 2011.
EXHIBIT 4: EUROPEAN -BASED ONLINE DATING PLAYERS
2000 2001 2003/04 2006/08
Source: GP Bullhound
Founded in 2000 and backed by Holtzbrinck Digital GmbH, Parship looked to replicate
eHarmony’s algorithmic matchmaking model for the German-speaking (DACH) market.
Parship established itself as the matchmaking leader in Europe and grew revenues north of
€50m and 10m+ registered users, with key properties in Germany, Switzerland, Austria and
the Netherlands.
As the European market developed, other players started entering the market with
Match.com establishing European operations based out of London in 2003. Elite Partners
(originally backed by Burda Media Ventures and then acquired by Tomorrow Focus in 2009)
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was founded in 2004 and by the time of the Tomorrow Focus acquisition, it had revenues of
€20m+ and was EBITDA profitable.
In 2004, Be2 launched in Switzerland and then raised €20m from Index Ventures and Banexi
Ventures in 2008 to expand outside of its home market. It is reported that Be2 European
revenues in 2010 were circa €21m. In 2008, eDarling launched in Germany received backing
from Rocket Internet in 2009 and reached European revenues of €21m by 2010.
Monetising Online Dating
Traditionally, the main way to monetise online daters has been through charging monthly
subscriptions. However, with the advent of Web 2.0, online dating providers have added new
functionalities and launched mobile offerings in order to attract more users and boost
monetisation.
Online dating players have added features which are inherently social but revenue
generating – either ones which help warrant the cost of monthly subscriptions (such as
instant messaging, mini-games and personal ratings) or which are of direct benefit and paid
for when used (such as virtual goods and micro-payments to browse other users’ profiles
anonymously or to enhance a users’ visibility in search listings). Developing value added
services has been a move that traditional online dating players have had to embrace as
daters’ attitudes between paying and free sites have become less stark with regards to the
quality of matches they may find.
EXHIBIT 5: CONSUMERS’ VIEW S ON PAID VERSUS FREE DATING SITES
Paying to belong to a dating site doesn't necessarily
52% 38% 8% 2%
mean you'll find a better match
I believe paying money to contact someone on a dating
38% 41% 17% 4%
site is unnecessary
You are just as likely to meet professionaly oriented 5%
36% 43% 16%
people on free sites as you are on paids sites
Paid dating sites have no advantages over the ones that
31% 39% 24% 6%
are available for free
Strongly agree Somewhat Agree Somewhat Disagree Strongly Disagree
Source: comScore
Given consumers’ attitudes to subscription websites and the flood of new social entrants,
online dating companies focused on subscription-based memberships have experienced
pressure on subscription prices and levels, with users migrating to free dating sites
monetized through advertising revenue. Another factor contributing to this shift in attitudes
towards subscription versus free, is that with the entry of free players into the space, few
users feel that access to a large pool of prospects is worth paying for: dating sites then must
offer more to command a premium.
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GP Bullhound LLPGP B ULLHOUND – ONLINE D ATING – A LABOUR OF LOVE
Although consumers’ perceptions to paid versus free are blurring, the number of consumers
willing to pay for online dating has been steadily increasing as both the single online
population and social acceptance of the service has continued to grow. According to TNS
data collected from Western European singles, the percentage of European singles willing to
pay for online dating services has grown from 24.3% (9.6m) in 2008 to 28.3% (15m) in 2012,
and is expected to grow to 31.9% (19.8m) by 2015.
EXHIBIT 6: EUROPEAN SINGLES PREPARED TO PAY FOR ONLINE DATING SERVICES
% of total
24% 25% 26% 27% 28% 30% 31% 32% singles
online
19.8m
18.3m
16.4m
15.0m
13.3m
11.9m
9.6m 10.6m
2008 2009 2010 2011 2012 2013 2014 2015
Source: Eurostat, TNS Brand Awareness
Throughout our discussions with several players in the online dating space, one of the
reasons given for the steady growth in online singles willing to pay for online dating services
is that a large portion of these individuals are users of online match-making services, such as
eHarmony, Match.com and Parship to name a few. Match-making users are more willing to
pay for online dating services as they are typically an older demographic with higher levels of
disposable income when compared to those users only willing to use free sites.
White Labelling
The other model which some players have used to enter the online dating market has been
through white labeling – providing publishers affiliates, marketeers, etc. with an online dating
platform for them to monetise their user base and/or traffic.
Two of the most successful European players in this space are Cupid plc and Global
Personals. Cupid was founded in 2005 and hosts over 100 websites through its own network,
white label and technology licensing partnerships. Global Personals was founded in 2003
and has a portfolio of over 7.5k websites in its portfolio.
By operating a portfolio of websites, Cupid and Global Personals are able to address multiple
sectors and dating options without compromising the identity of its key brands. Their
combined databases of over 72m registered users allows for considerable potential for cross-
marketing, with the average customer registering at two or more Cupid/Global Personal sites.
This model has proven to be quite successful with Cupid having revenues of £53m+ and
EBITDA of £10.6m (19% margin) in FY11, and Global Personals reporting annualized
revenues of $62m+ with EBITDA margins of circa 13%.
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Market Size and Growth
Despite being well established, the global online dating market can be difficult to quantify -
most statistics relate to the US market. There are a number of reasons for this. Firstly, there
is no official industry body or trade association regulating the dating industry which provides
official figures. Secondly, the US is essentially the birthplace of online dating and its largest
market. The US makes up close to 50% of global online dating industry, in revenue terms.
With some notable exceptions, such as Russian (Mail.ru) and Chinese (Jiayuan.com) sites,
many non-US sites are in fact owned by or are localised versions of large US players who
have expanded out of their home market, with ownership of the remaining sites being
relatively fragmented across geographies.
The 12 US-based dating companies together account for almost 60% of the traffic of the top
30 global dating companies by unique monthly visitors (UMVs), with Match.com taking the
lion share of global eyeballs.
EXHIBIT 7: TRAFFIC TO TOP 30 GLOBAL DATING SITES DOMINATED BY US PLAYERS
7.4%
5.5% US
12.8%
4.9% China
3.4% Russia
3.3% Australia
2.9% UK
2.6%
France
Germany
Other
India
57.2%
Source: comScore
In spending terms, the US online dating market generated approximately $1.1bn in 2009,
and is expected to rise to almost $2.4bn in 2013, representing a CAGR of 21.5%, with the
global market estimated to be worth $4bn in 2012. According to market research publisher
Tampa, key growth drivers are expected to be geographic expansion and mobile app roll-
outs.
EXHIBIT 8: SIZE OF ONLINE DATING MARKET
2009A 2013F
$4.5bn
$2.4bn
$2.1bn
$1.1bn
US Global
Source: Forrester, Jupiter, Mintel, Marketdata Enterprises, GP Bullhound
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The Rise of Social Discovery
Since the breakthrough of Facebook and social networks, social features (such as Facebook
integration, Like buttons, shareable content, ratings and reviews, commenting functions,
polls, etc.) have been increasingly present in consumers’ everyday online experience. Social
features have been more and more integrated with all sorts of online offering: consumers
have access to such features while reading news, watching video or accessing a wide array
of other content online whether for work (e.g. LinkedIn) or leisure (e.g. travel or games).
Dating is one of the quintessential social activities, and Facebook and the other social
networks have helped people looking to make new friendships and relationships online.
Many people realized that Facebook and other social networks could be very powerful (and
free) instruments to meet new people. As a consequence, in comparison to the early days of
social networks when people would go to social networks to make new friends or interact
with existing ones and to dating websites to find a match, now the boundaries have blurred
considerably. Social networks now clearly focus on promoting “sharing” with a user’s existing
network therefore enabling companies to provide a better user experience and monetise
their user base more effectively. As a consequence, social networks have shied away from
incentivizing users to overly expand their networks but rather are interested in their users
giving access to deeper content and information. This in turn allows Facebook and other
social networks to better monetise their user base through the sale of targeted advertising.
EXHIBIT 9: EVOLUTION OF SOCIAL NETW ORKS AND ONLINE DATING MARKETS
Existing Friends Meet New People
2004 Social Networks Online Dating
Social
2014 Casual Dating Online Dating Matchmaking
Discovery
Source: GP Bullhound
From the online dating point of view, the dating sector in the traditional sense is now more
fragmented than ever, with over 1,500 dating sites in the US alone. Matchmaking and
“traditional” dating are more likely to attract a more mature and wealthy demographic (mainly
through subscription business models), and niche and casual dating sites looking to
monetise younger and more casual users (mainly through freemium business models). In
between social networks and online dating, a new proposition named “social discovery” or
“meet new friends” has been evolving in parallel. Social discovery focuses on bringing
together the casual elements of meeting new people, with a variety of aims which include,
but are not limited to, dating (see Exhibit 9).
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GP Bullhound LLPGP B ULLHOUND – ONLINE D ATING – A LABOUR OF LOVE
The concept of enabling users to meet new friends is of course not new: in the first
generation of social networks (e.g. MySpace, Bebo, Hi5) there was often an element which
allowed users’ to meet new people online. This is in contrast to the now well known
“someone you might know” functionality of today’s Facebook, LinkedIn, etc., which focuses
on building an online relationship through your existing real life contacts.
New social discovery sites have recently appeared, catering to the specific need of meeting
new people for whatever purpose. Social discovery websites typically gather profile and
contact information from one or more social networks with which the user has an account,
and then use it (as well as users inputs made into their own platforms) to tailor the offering to
that user accordingly, and monetise him or her through the sale of value added services,
membership subscriptions or advertising.
Social discovery is a concept which can be applied to a variety of activities as long as they
are suited for doing something with other people. Dining is an example: Grubwithus is a
Chicago-based start-up which offers a “Social Dining” service, where friends and potential
new friends create and join meals for 6-10 people. Most meals are themed or hosted by a
Grubwithus Group to help bring together interested and similar people as well as to guide
initial conversation topics at the meal. Each individual pays in advance through Grubwithus
for a set menu, and the company takes a fee. In the UK, Dinmill offers a very similar service,
calling itself a “Social Dining Network”.
EXHIBIT 10: SOCIAL DISCOVERY SERVICES (REPRESENTATIVE, EXCLUDING DATING)
Dinner Travel Other
Source: GP Bullhound
Social discovery can also target travelers: services such as Mysocialpassport (founded 2011)
and Travbuddy.com (founded 2005) allow users to search for new people to meet while on
the road, people to organise a trip together, or to share reviews and other travel-related
content. These companies typically monetise their user base through advertising and lead
generation. Tripl (founded 2010) allows users to find out who their friends would recommend
as a “must meet” local when traveling the world. Tripl collects data from the incumbent travel
companies and in return provides them with opportunities to re-target potential travelers with
customized and relevant offers. A B2B proposition such as Tripl may prove winning versus
the C2C ones, where competition for advertising and value-added service revenues is more
intense.
Social Dating: A Natural Evolution from Social Networks and Online Dating
A common way in which social discovery enables people to build connections beyond their
local networks – and find dates – is to link them based on shared interests. In the last 3-5
years, a large number of companies have emerged, specifically focusing their attention on
this aspect of social dating. Why?
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First, there is a monetization / user behavior consideration. Whereas marriage, matchmaking
and “traditional” dating websites have the aim of pairing users which eventually get off the
websites when they have found a match, social discovery tends to lend itself better to
meeting new people for casual dating, as opposed to matchmaking. The matchmaking model
(monetized mostly through subscriptions) lends itself well for demographics with higher
purchasing power looking for a long-term partner, which have a larger disposable income.
On the contrary, freemium monetization models with frequent transactions of a smaller ticket
size can be more attractive to younger demographics who may seek to step in and out of the
casual dating arena for a few years.
Secondly, the sheer size of the potential market has to be considered. The dating and
matchmaking funnel gets narrow towards the bottom: the vast majority of potential customers
for dating websites are singles, using the internet, who are willing to pay for such services. If
we take the US, for example, there are 90m singles (not married), of which 54m not currently
in a relationship, of which only 2.6m pay for online dating services. Match.com has 1.8m
1
paying members, or 69% of the addressable market . There are exceptions: some non-
singles might still use services like Ashleymadison.com (a website specifically targeted at
affairs); also, a portion of the 54m singles not in a relationship would be willing to pay for
other dating services in freemium or casual dating websites, for instance.
It is our belief that the funnel for the dating sector as a whole (including casual and niches) is
larger than the estimate above. However, the potential market for social dating and social
discovery is even larger. In the broadest sense, the market could be defined as every online
adult in the US, and a good proxy could be represented by the over 100m Facebook users in
the US. For social dating, the addressable market could be represented by a high portion of
the 54m singles in the US, and is much larger than the market willing to pay for matchmaking
services (see exhibit 11).
EXHIBIT 11: MATCHMAKING VS. SOCIAL DISCOVERY FUNNEL
US MATCHMAKING FUNNEL US SOCIAL DISCOVERY FUNNEL
Source: GP Bullhound, Match.com, Broker research, Internet World Stats
1
Source: Match.com, Deutsche Bank
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GP Bullhound LLPGP B ULLHOUND – ONLINE D ATING – A LABOUR OF LOVE
Not surprisingly a large number of companies have sought to commercialise this massive
opportunity. Badoo, the most well-established player, was founded in 2006, and is very open
in its casual dating intentions. The primary connecting factor is the shared location, rather
than interests. The formula has worked so far: Badoo is now one of the largest (and
reportedly most profitable) companies in the space; in May 2012 TechCrunch reported that
Badoo had over 150m users and is one of the largest social networks globally, according to
ComScore. Badoo operates in 35 languages and has been reported to have an annual
revenue run-rate of $150m.
Another very popular service is Zoosk, a social dating community working as a Facebook
app. Founded in 2007, Zoosk is available in more than 25 languages and has subscribers in
more than 60 countries. The other large player in the space is Tagged: originally founded in
2004 as a teen-only social network, it pivoted to its current social discovery focus in late 2007
and has been profitable since 2008. The company’s service is designed to enable anyone to
meet and socialise with new people through social games, customized profiles, virtual gifts,
advanced browsing features and other value added services. Tagged has over 330 million
members in 220 countries. In 2011, the company had revenues of $43m (+35% vs. 2010)
and doubled its staff.
The key to the profitability of Zoosk, Badoo, Tagged and other established social dating
websites is their monetization through freemium models, heavily reliant on Value Added
Services. Registrations to such sites are typically free but users can pay for services such as
the ability to boost themselves up on the display rankings in the form of bidding war, the
ability to see who viewed their profile and rated them highly, or virtual gifts (see exhibit 12 for
more examples). Social games and advertising can be also featured on the platform and
provide additional monetization streams. There might be an option for a monthly subscription
to get all the benefits that can be bought individually thus giving users “premium” status on
the site.
EXHIBIT 12: VALUE ADDED SERVICES TYPICALLY USED IN SOCIAL DATING
Value Added Service Description
On certain sites users have to purchase credits to communicate, special “urgent”
Credits for messages
messages, increase inbox size
Allows users to come on top of search results and landing pages with certain
Highlight / Boost
criteria
No advertising Removes ads from the site
Special filtering Allows users to perform more tailored search, e.g. by attractiveness (measured as
options other users’ ratings, which are typically not public)
Browse Anonymously Allows users to browse other users’ profiles anonymously
See who likes you Allows users to see who rated them highly or “liked” them
Virtual gifts Users can typically send gifts (e.g. virtual flowers) for a fee
Source: GP Bullhound
Another key for these social dating services’ success has been related to user acquisition.
Historically, such sites had an inherent advantage in terms of user acquisition versus the
incumbent dating and matchmaking players. The most successful relied more heavily on
12
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social networks themselves to increase traffic via viral mechanics, in contrast to the
notoriously expensive acquisition methods of traditional players. This had an enormous
impact in terms of profitability: Badoo’s EBITDA margins were rumored to be over 50% in
2011, vs. margins of the most successful matchmaking services at c.25%-30%.
Social Dating 2.0: A New Crop of Players
Most of the companies mentioned above, in our view, represent a “first generation” response
to the social dating question. Their business model is heavily reliant on casual dating
dynamics and is still dependent on a constant stream of new users in order to maintain
liquidity on the platform and ensure a good product experience. In some instances
consumers have expressed concerns over some of these websites in terms of their actual
quality and reputation: anecdotes of fake profiles run by algorithms (“bots”), difficult
membership cancellations and other aggressive marketing techniques have been reported in
the wider dating industry, in particular, on services with a stronger orientation towards casual
encounters. The reputation of certain websites might end up being counterproductive: less
women liking them starts a vicious cycle which limits the appeal of the service. Nevertheless,
a number of new generation players are emerging with a fundamental difference to compete
with the established social dating incumbents which are in fact social networks pivoted on
casual dating and transactional in nature.
This new breed of social dating players claims to provide a better user experience by
integrating directly with a user’s existing social graph on Facebook, and use and cross-
reference this deeper level of user data. One of these services, Thecomplete.me, is a tool
which integrates with Facebook with a focus on meeting new people who share your
interests and friends. It offers search and filtering functions and control over who sees what
and when. The implicit aim of the website is to provide users with the best possible first date.
If you are not single, as a user you can nudge your single friends to go out on dates by
leveraging your and your friend’s network. Founded in 2011 by Brian Bowman, former head
of product of Match.com, the company has among its early investors; Markus Frind, CEO
and founder of PlentyOfFish, the online dating freemium website.
EXHIBIT 13: SOCIAL DATING SERVICES (REPRESENTATIVE)
Source: GP Bullhound
Another start-up in the space is Likebright, founded by Nick Soman in Seattle in late 2011,
about the same time as Thecomplete.me. The mechanics for Likebright are fairly similar:
seamless and fast integration with Facebook, and focus on meeting new people with shared
interests. The slightly different tilt is that there is a stronger emphasis of getting introduced by
friends, under the assumption that, like in real life, friends’ recommendations and
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introductions can improve the probability of a successful date or match. The interface is also
different from Thecomplete.me, with a simple Pinterest-like way of displaying profiles.
Another difference is the absence of detailed search and filtering functions: the service for
the most part automatically suggests who users could be interested in. Likebright is
particularly aimed at women, who too often don’t have satisfactory experiences on dating
websites: the introduction and friend of a friend mechanics are specifically targeted to
improve women’s trust in the platform.
In November 2012, IAC-owned OKCupid announced the launch of a new “people discovery”
service, Tallygram. The service (now only an Alpha version) uses the Facebook social graph
and the OKCupid’s experience with questionnaires to explore and discover new
relationships. A similar service is offered by Pinstant Karma, which helps connect users with
similar interests: users can create Pinterest-style boards filled with images of their favorite
places, special memories, foods and anything else that helps tell their story (and helps the
site to match them with others).
An alternative approach is taken by Huntcha: a social dating service with the aim of helping
users discover who their secret love is without the risk of rejection. Huntcha pairs someone
with people also registered on the service through Facebook. Only when they have both
expressed interest in one another, Huntcha privately reveals a “crush” connection.
All these second generation social dating companies mentioned above are a response to the
fact that a universal front door for people interested in dating does not exist. At least it does
not exist in the same way as Facebook is the front door to connect with your existing friends
online. Instead, users now look for a date on a myriad of alternatives in the form of dating
websites and social networks. The underlying belief motivating many social dating
entrepreneurs is that, whoever is successful in creating a new generation social dating
service which is not just a good dating website disguised as “meet new people”, but benefits
from the integration with the social graph and a person’s existing network of friends, has the
possibility to become a mass market service.
Challenges Ahead for Social Romance
Typically, a dating company is successful by attaining critical mass through the acquisition of
increasingly costly traffic. Gone are the days where virality on Facebook could propel a social
service company into the stratosphere with a disproportionately low marketing spend. New
rules on Facebook limit the sharing and re-posting of such applications due to concerns of
social graph pollution. Furthermore, even if some industry participants say that the stigma of
dating is largely gone in most developed markets, there still is a certain understandable
reluctance attached to publishing your membership to a social dating or social discovery
service on Facebook timeline.
In the past, certain dating and social discovery companies chose to rapidly scale their
member base, exploiting the fact they were the first of their kind, and only then improve their
product (e.g. POF, Zoosk, BranchOut). Now, the second generation players are focused on
getting the product intrinsically right, mainly through social content and deep integration with
Facebook, and only then attempting to exploit the underlying liquidity of the Facebook
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platform to grow. Companies need to demonstrate that they can provide valuable,
transparent services and make money at the same time without using aggressive or
questionable techniques that has led to some of the past PR scandals.
Social discovery businesses are mostly reliant on micro transactions, advertising and a
subscription component to make money. Other social discovery players (e.g. e-commerce or
travel players mentioned earlier in this report) would need to find alternative ways of
monetizing their platforms with more emphasis on lead generation and advertising. The
growth of social discovery is evident; the execution is difficult but the potential rewards are
sizable. Some players are creating new offerings, and others are just rebranding themselves
from online dating to social discovery in order to exploit the buzzword. Those who get the
model right, however, will be able to command a slice of a much larger pie than the existing
dating or business networking markets. It is our belief that in the future traditional dating
models will still exist, however a growing portion of the online population, boosted by younger
demographics, will use social discovery as their “front door” to online dating.
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Dating has Become a Key Category in Mobile
Arguably, the major trend currently sweeping the digital landscape is the inescapable rise of
the mobile Internet. Increasing smartphone and tablet penetration, progress in mobile
operating systems, mobile’s always-on nature, and other popular features such as geo-
location, has led to the spectacular growth of mobile social media, applications (apps),
games, and a vast array of solutions for consumers and businesses.
EXHIBIT 14: US MOBILE DATING MARKET EVOLUTION
$415m
$381m
$340m
$295m
$251m
$213m
$165m
$109m
$43m
2009A 2010A 2011A 2012E 2013E 2014E 2015E 2016E 2017E
Sources: IBISWorld June 2012
The worldwide mobile app market was estimated at $7.3bn in 2011 by IDC, and is set to
grow over 50% annually to $35bn in 2015. This switch to mobile is inevitably affecting the
online dating world: the global mobile dating market was estimated to be $1bn in 2011 and is
forecast to reach $2.3bn in 2016 (Juniper Research). In the US, the market has grown over
70% per year to $212m in 2012, accounting for c.4% of the US mobile app market. The
industry is forecast to grow 14% per year to over $400m in 2017 (See exhibit 14). In
Germany, Mobile Dating reached €25m in 2011, accounting for c.10% of the overall German
online dating market, and is forecast to grow by 30% in 2012.
This rapid growth has been facilitated by a number of drivers:
Firstly, getting a date is an inherently social activity which people have conducted
on mobile phones as soon as the first mobile phones appeared, by calling and
sending SMS.
Furthermore, the two top activities that users look for on dating websites, browsing
and sending messages, lend themselves extremely well to mobile.
As smartphone penetration and mobile network speed have dramatically increased
over the past few years, they have facilitated online dating apps.
Mobile Dating Usage Rising Sharply
The time users spend on mobile has greatly increased, and mobile dating apps have
improved considerably to reflect the increasingly social nature of the dating proposition.
Users – thanks to similar features in social networking applications – can transition
seamlessly and become accustomed to browsing potential partners and uploading pictures
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and other personal information on their dating profiles via mobile. Another key consideration
is that, with a proprietary mobile app handling communication between dating users at any
time in any place, there are less concerns related to sharing private information such as
phone numbers. Within the world of mobile apps, the largest category on US Smartphones,
behind gaming, is Social Networking, in which dating apps appear (ComScore, July 2011).
EXHIBIT 15: DAILY TIME SPENT ONLINE DATING IN THE US – ONLINE VERSUS MOBILE
Online Dating (Websites) Mobile Dating (Apps)
8.9mins 8.4mins
8.4mins 8.3mins
4.8mins
3.7mins
Jun 2010 Dec 2010 Jun 2011
Sources: comScore, Alexa, Flurry Analytics.
Enhanced functionality and a proliferation of dating apps have been driving up both the sheer
number of users dating on mobile, and the average time spent on mobile dating applications.
In the US for instance, in the space of one year the average daily time spent on mobile
dating has risen from 3.7 minutes (less than half that spent on dating websites) in June 2010,
to 8.4 minutes, exceeding time spent on online dating sites in June 2011 (see Exhibit 15).
The transition towards mobile dating is reflected not just in the length of time spent accessing
mobile apps, but also in the frequency with which this is done. In 2011 the average US user
opened a dating application twice a day, for a little under 2 minutes each time. Now he or she
typically opens their app over 5 times a day, but for shorter periods of time. This is a
reflection of the “always on” nature of mobile dating apps.
The overall trend in online dating is towards both greater internet and mobile app usage –
they are not mutually exclusively and each is capable of driving the other. The main
takeaway though, is that analyses performed by Flurry Analytics on ComScore and Alexa
data show how mobile dating is already more popular than desktop dating: 17% of unique
internet users use mobile dating apps, vs. c.13% in desktop dating in June 2011 (see Exhibit
16).
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EXHIBIT 16: % OF ALL UNIQUE INTERNET USERS DATING ONLINE BY METHOD
17%
15%
13%
12%
Internet Mobile Apps
Jun 2010 Jun 2011
Source: Compete, comScore, Alexa, Flurry Analytics
Incumbents and New Players are Pursuing the Mobile Dating Opportunity
Not long after smartphones were introduced, the large incumbent players in the dating space
realized the potential of the mobile market, and began launching their own mobile version of
their services shortly after, typically in the form of lighter, mobile-accessible websites,
Facebook mobile apps and dedicated mobile applications. Match.com launched its iPhone
app in March 2009, the first company to allow its mobile users to edit their profile, upload
photos, and even locate singles in their area using an opt-in to a location-based feature.
SNAP Enteractive’s AreYouInterested? launched a casual dating app with similar
functionalities in the same month. Others followed suit with similar adaptations of their
desktop services for iPhone, Android and other mobile operating systems (see Exhibit 17).
EXHIBIT 17: ONLINE DATING INCUMBENTS MOBILE APP LAUNCHES
Source: company press releases, press articles, GP Bullhound.
The decision to bet early on the mobile market has proved to be a wise one; for many of
these players, mobile apps represent the strongest growth driver in terms of users and
revenues. In May 2012, Badoo announced its mobile usage has risen over 100% in the last
six months, and that 68% of new users came on the service via mobile. The Social Discovery
service MeetMe (formerly MyYearbook), in August 2012 reported $1.3m in mobile revenues,
up 73% Q-o-Q and 152% Y-o-Y, and accounting for c.10% of the company’s revenues for
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the quarter. As incumbents such as Match.com have been quick to capitalise on their
established user bases by migrating users to mobile, and focused on gaining a share of the
quickly growing mobile dating market, a large number of new entrants have launched mobile-
only propositions. Many of these new entrants offer fairly standard dating applications such
as the one offered by the incumbents, which might be focused on a niche or place more
reliance on geographical location.
As happened in eCommerce, a lot of emphasis and hope has been put on geo-location for
mobile dating. Most online mobile apps have geo-location functions; however, so far geo-
location dating has remained a niche segment, mainly due to concerns about privacy and
safety. Many users are hesitant to give away their location to strangers, especially after a
number of crime cases related to geo-location apps have been brought to the public
spotlight. Geo-location has enjoyed more success in the gay community, with apps such as
Gaydar and Grindr, where same-sex members appear to be less reluctant about using such
services. Since launching in early 2009, Grindr, a male-only application, has grown to reach
more than 4m users worldwide in June 2012 (with 500,000 new users in Q2 2012 alone) and
more than 1m active unique daily visitors. A large number of straight mobile geo-location
apps exist and are all fairly similar, often lacking the necessary liquidity: users have to install
multiple apps to figure out which one works best in a given place in a given time.
SingleSquare, for instance, is a freemium app that uses FourSquare technology to find
potential matches nearby.
Another much talked about space in the mobile dating sector is Video-dating. With
increasingly fast mobile connectivity and good quality cameras on smartphones and tablets;
it is now possible to have an efficient video-conversation. A plethora of start-ups have
naturally translated the concept to dating, in a video speed dating model. Companies such as
Flikdate, Mobilevideodate, SpeedDate, WhosHere, offer such services. Users typically sign
up (usually with their Facebook login), filter which kind of potential dates they are interested
in – male or female, height, weight, body types, etc., add a short profile and add a photo.
Once matched users can send messages and have a short introductory video date.
Typically, every conversation is limited to a set time and costs users a fixed amount; after
that, users can pay with credits for longer video dates.
EXHIBIT 18: MOBILE DATING APP LANDSCAPE (REPRESENTATIVE)
Source: GP Bullhound
Speed dating and video dating concepts have proved to be an attractive product for a niche
audience, however the market has so far demonstrated to not be ready yet for such a
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proposition on a larger scale. Live video communication with strangers and video dating have
been tried in the past on the desktop format with mixed fortunes: Chatroulette, although not
specifically aimed at dating, has enjoyed enormous popularity and media attention, but was
highly penalized by the lack of moderation. Airtime, founded by former Facebook and Skype
executives, has resorted to Facebook identification to try and limit such risks, and pulls data
from Facebook to increase match probability by pairing shared interests. WooMe.com
launched with a similar speed date proposition in 2007 and raised over $10m from Index
Ventures, Mangrove Capital Partners and Atomico Ventures; the company was reportedly
acquired by Zoosk in November 2011 in a rumoured fire sale.
Mobile Dating: The Challenges
Many challenges exist in order to build successful mobile dating companies: user
monetization is, as for the rest of mobile, complicated. The best models have proven to be
freemium apps monetised by advertising and by charging for value added services.
Gamification and social aspects are top of mind for mobile dating app providers. Handmade
Mobile, the company managing the Flirtomatic mobile site and app, has reported 6m
registered users and most of their revenues and profits come from mobile value added
services. The main challenge is that mobile dating is not immune from the inherent churn
dynamics of the wider dating market, and the user acquisition cost for a mobile user is higher
than for a desktop user. Companies are under more pressure to get their user acquisition
and monetization strategies right from the start, or else they will face serious difficulties in
reaching or maintaining profitability, once the initial viral growth stops. Other challenges have
not been solved yet: geo-location dating carries serious privacy and safety risks and has to
be improved in order to offer better user experiences. Mobile video dating is still a niche in its
infancy.
Ultimately, we are convinced that mobile dating will be a vast industry, and has the potential
to grow more rapidly than other mobile categories. Much trial and error is still needed, and a
universal model on how to make mobile dating work on a large scale has not been found to
date. But by making it easier for people to meet and date spontaneously, mobile dating is not
so much a trend within the online dating industry, but a natural progression of the entire
concept of online dating itself. Whoever is able to capitalise on this underlying trend will be in
a position to reap significant rewards.
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Selected Company Profiles
Founded in 2002, Ashley Madison is a niche dating player which actively encourages and
enables people to have affairs, with a strong emphasis on protecting member privacy. The site
provides a freemium service which requires members to purchase credits to unlock custom-
mail messaging and chat sessions, and to send virtual gifts. Ashley Madison is famous for its
provocative ad campaigns and bold PR stunts: in April 2012 it offered $1m to any woman who
could prove she slept with football player Tim Tebow, a self-professed virgin. The site attracts
over 1.4m UMVs, has over 8.5m users and in 2011 reported revenues of close to $60m.
Ashley Madison is owned by Avid Life Media, a niche dating site operator which also owns
gay dating portal Man Crunch, and CougarLife, which connects older women with younger
men.
Founded in 2006, Badoo is a social dating network accessible via both computer and a mobile
app. It operates a freemium model which enables users to sign up and send messages for
free, but charges them to promote themselves to the top of search listings and to activate
“super powers” such as seeing who has been reading their messages, and viewing other
profiles anonymously. Badoo reported to have over 150 million registered users in over 180
countries and a revenue run rate of $100m. In 2012, Badoo acquired Hot or Not, a site which
allowed users to rate the attractiveness of photos submitted by others. The company is owned
by investors including Finam Capital, which invested $30m in 2008.
Founded in 2005, Cupid is a listed UK and International dating player which operates a broad
portfolio of 25 portals across traditional, casual and niche dating. It also operates a mobile app
and a white label dating service, and has a broad affiliate network. Active in 15 countries,
Cupid attracts over 3.6m UMVs and more than 480,000 paying subscribers, with 56m member
profiles registered and over 16m active users. In 2011, the company doubled its revenues to
£54m. In July 2012, Cupid acquired French Genie Logiciel for €3.7m, and in September niche
dating site Uniformed Dating for £7m. The company has been publicly listed since 2010 and
has a market capitalisation of c. £150m.
Founded in 2008, eDarling is a Germany-based freemium dating site which operates 14 local
language portals across Europe. It also publishes dating-related content through its “Science
of Love” blog. The site is 30% owned by eHarmony and its main competitor is Match.com-
owned Meetic. eDarling attracts more than 1.4m UMVs and claims more than 12m members.
The company is expecting 2012 revenues to be up 30% on 2011 to around €50m, making it
one of the top European dating players by revenues. Other investors in eDarling include the
venture arm of German publishing group Holtzbrinck, IBB Beteiligungsgesellschaft and Rocket
Internet.
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Founded in 2000, eHarmony is a subscription-based matchmaking site with a strong focus on
compatibility matching via its proprietary algorithm. It does not allow users to browse profiles
freely, but sends them regular samples of compatible matches. eHarmony focuses on
attracting quality, relationship-minded people and filtering out undesirables through its lengthy
registration questionnaire. The site attracts over 2.4m UMVs. It is estimated to have achieved
$300m of revenues and EBITDA margins of c.30% in 2011, and to have converted around
24% of its active members into paying subscribers, nearly three times the industry average.
eHarmony is active in Australia, Canada, the UK and Brazil and has a European presence
though a 30% stake in Germany-based eDarling. The company is privately owned by
investors including Juvo Capital, Saints Capital, Sequoia Capital and Technology Crossover
Ventures.
Founded in 1997, FriendScout24 is a freemium dating site which operates across seven
European countries and has a leading position in Germany, Austria and Switzerland. It
operates a freemium business model with a basic free service and a monthly fee-paying
membership with enhanced features. FriendScout24 reported to have more than 10 million
members, over 200,000 daily active users and more than 12,000 new users per day. In 2011
FriendScout24 launched Secret, a portal for people interested in flirting and casual
encounters. The company is a subsidiary of Deutsche Telekom and part of the Scout24 group,
a series of content portals which also cover cars, electronics, personal finance, real estate,
jobs and travel
Founded in 1997, Global Personals is a diversified dating player which operates its own
portals and provides white label dating services for thousands of others. Global Personals’
own sites cover generic, casual, and niche dating. Its white label offering provides dating
software (including mobile, API and social network integration), membership databases,
payment processing and customer support for over 7,500 sites. The white label dating client
provides the site’s brand, design and marketing, and is monetised through a revenue sharing
model. Global Personals reported over 200 million page views per month, over 8 million daily
interactions, and annualised revenues in excess of $74m. The company is privately owned.
Founded in 2009, Grindr is a location-based mobile app which enables gay, bi-sexual or bi-
curious men to meet other like-minded men in their vicinity. Grindr operates a hybrid business
model, offering its app as both a free ad-driven version (Grindr) and a monthly fee-paying
alternative (Grindr Xtra) with enhanced features such as push notifications, quick menus and
ad-free browsing. The app is available across a wide range of devices including the iPhone,
iPad, Android devices and selected Blackberry models. Grindr claims to have more than 4
million users in 192 countries, 1 million daily users and around 10,000 new users every day.
The company is owned by its founder and CEO, Joel Simkhai, who has subsequently
launched a social dating app for straight people, called Blendr.
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