http://www.wsj.com/articles/the-dating-business-love-on-the-rocks-1433980637 1.
ID: 459532 • Letter: H
Question
http://www.wsj.com/articles/the-dating-business-love-on-the-rocks-1433980637
1. “Dating Service is actually a pretty lousy industry for the producers involved”. Analyze the industry profitability potentials using Porter’s Five Force Model and Industry Attractiveness Matrix to support or refute the statement.
2. Customer loyalty is hard to build in this industry. Why is that? Why do many customers switch to other providers so easily? Why do so many customers simply stop purchasing altogether? To what extent is this a "suicidal "industry? Can you think of any way for a firm in the industry to be the beneficiary rather than the victim of its own success?
3. Typical ways of avoiding becoming a commodity are segmentation and differentiation. What are some of the segmentation strategies mentioned in the article? What are some of the differentiation strategies mentioned? To summarize, what is the difference between segmentation and differentiation? The Dating Business: Love on the Rocks Tinder’s success helps fuel explosion of dating apps and sites, as it gets harder to turn a profit in the matchmaking game WSJ, June 10, 2015 Like bunnies, dating apps have shown a knack for proliferation. With a young, increasingly busy and mobile audience, the allure of the dating app business can be intoxicating. And the market is big. Dating sites in the U.S. are expected to make $1.17 billion and dating apps are expected to log $628.8 million this year, up from $1.08 billion for dating sites and $572 million for dating apps in 2014, according to IBISWorld. Apple Inc. AAPL -1.75 % ’s iTunes store has more than 500 apps that are available to join and have a critical mass of users. But the challenge is to woo those same users. Fickle singles often browse for recreation or roam from site to site. As Brianne Huntsman, an undergraduate student at Stanford University, who has sampled three free dating apps, puts it: “I thought the grass would be greener elsewhere.” And success—matching people in relationships—means they no longer need the service. At the same time, some dating apps are looking for hookups of their own. Gay-dating app Grindr LLC recently hired investment bank Raine Group LLC to help it find a buyer, according to a person familiar with its finances. More than 10 other dating companies were acquired in the past year, two by Barry Diller’s IAC/InterActive Corp. IACI -2.68 % , which already owns nearly 22% of the market through an amalgam of sites and apps that includes OkCupid, Match.com and Tinder. “In terms of revenue, the online-dating industry has matured, but there are too many players and not a lot are generating sufficient revenue for these sites,” said Britanny Carter, analyst for research firm IBISWorld. As dating sites and apps like Tinder and eharmony continue to grow in popularity, many of the companies behind them are finding it difficult to compete in the saturated market and to attract investors. The WSJ’s Lee Hawkins reports. Some investors have been wary. They point to a constellation of challenges to growing the next dating app into a billion-dollar company: Although the stigma associated with dating apps is fading, people don’t tend to push their friends to join the latest hit dating app, satisfied customers leave and expanding into other cities essentially requires creating a new marketplace. Plus, there haven’t been many successful dating startup exits. “There’s a large swath of angels/funds who categorically refuse to invest in the dating category in the same way that many refuse to invest in games, hardware, gambling,” writes Andrew Chen, a startup adviser and former venture capitalist in the San Francisco Bay Area. “It’s an uphill battle for dating apps to attract interest.” Still, some entrepreneurs are getting help from venture capitalists, who have poured $148.8 million into the industry since early 2010, according to Dow Jones VentureSource. Players in the market range from mass sites such as Match.com and eHarmony to those specializing in an array of niche interests and clientele: Grindr and Her for gays and lesbians; Ashley Madison for people seeking extramarital relations; and GlutenFree Singles. Even major players are under pressure: Online-dating platform Zoosk Inc. withdrew its plans for an initial public offering last month after more than a year of delays. While Chief Executive Kelly Steckelberg said the company was profitable the first quarter of this year, 15% of Zoosk staff was laid off in January. “Our decision to revisit taking Zoosk public at a later date is a result of being focused on profitability and sustainable growth to ensure Zoosk’s continued success,” Ms. Steckelberg said. Grindr CEO Joel Simkhai declined to comment on whether the company is pursuing a sale, but said his service is profitable and is expanding. Mr. Simkhai said Grindr had 1.9 million daily active users in April, from 1.4 million in 2014. “When it comes to being a business, dating apps have a really disturbing paradox. The better you are at matching people, the more quickly your customers evaporate,” said Patrick Chung, co-founder and partner at venture-capital firm Xfund. To build a fruitful user base, most dating apps and sites are free to join. Marketing to attract those is what can be expensive. “Customer acquisition in the dating industry is the most important, horrendous and difficult thing on the planet,” said Mikolaj Piskorski, professor of strategy and innovation at IMD business school in Switzerland. With a couple of exceptions, such as Tinder and Grindr, few dating apps have gone viral. Zoosk, which has both free and paid features, spent $40.4 million on marketing during the first quarter of 2014 to acquire new members, for instance. Zoosk declined to disclose the amount it has spent on marketing this year. To combat the churn of users, the League, a dating app that focuses on the high-end market, invites some users to “go steady,” and promise not to use any other dating apps, in return for an algorithmic boost. The contract states that users who agree to delete their other dating app profiles will get access to the League’s “highest performing” profiles and get a first look at the profiles of new members. Most of the apps that are generating revenue, such as Grindr and Match.com, do so with a combination of advertising and freemium features that users can access through subscription. That users switch so frequently between sites has benefited IAC. It owns more than 10 dating sites and is able to encourage customers to try out its other sites too. IAC doesn’t disclose revenue for its individual sites, but revenue for its dating properties as a group rose 2% during the first quarter of this year, compared with a year ago. The number of paid subscribers for all of IAC’s dating apps grew 16% during the same period, according to a company filing with the Securities and Exchange Commission. Part of the reason users still pay to join some dating sites, despite free alternatives, is because it allows them to meet others who have chosen to pay to meet people as well. “It demonstrates a lot of commitment when someone has put a coin on the table,” said Mark Brooks, CEO of Courtland Brooks, a company that helps dating companies with business development. Neil Clark Warren, the founder of eHarmony, said in March that his company, which charges subscribers $18 to $60 a month, last year logged more than $275 million in revenue, its highest level in several years. Dating app entrepreneurs are aware of the challenges, but they point to the success of Tinder as evidence there is still demand for new ways to discover potential mates via a smartphone. A recent funding round valued Tinder, which pioneered swiping through images of potential dates as a way of finding a match, at close to $1 billion; the IAC unit doesn’t disclose how many users it has. “The old dating websites operated on the belief that you had to fill in criteria to find a perfect match. They were too time-consuming,” said Marie Cosnard, head of communications for Paris-based dating app Happn, which has 3.5 million users. “Tinder was a revolution. It showed us that swiping quickly could be a success.” Write to Georgia Wells at georgia.wells@wsj.com
Explanation / Answer
We are supposed to decide that the Dating industry runs well and enjoys a good deal of profit or suffers loss.
Let us analyze and decide:
Challenges encountered: The apps making us addictive;
Challenges Wooing (Convincing): How to close the sales from the window shoppers – I personally had opened many free accounts in more than half a dozen dating sites just to look at the nice photos of the other gender people! But I paid only one provider – now the other 5 providers were at loss! – What can they do?
The next problem is the too many players – there is more supply than the demand – fate of this dating industry!
The word of mouth marketing does not happen in this dating industry – may be people are shy?
Time: Do I have to fill 100 forms before I even get the phone number? Forget it – I would say it is waste of time – go find somebody face to face in the local pub.
Hence if a dating provider has to succeed, the customer must get to see and talk to the potential partner within 10 seconds of entering your site and just on the very first page (home page)
Citation: Oxford University Press; Publications made in the year 1999 by the partners Ms. Wright and Ms. Lovelock, between pages 90 and 99;
1.
Porter’s Five Force Model:
According to Mr. Porter, all the 4 will affect the competitive strength and our survival capacity in the market – let alone retaining our market share.
Industry Attractiveness Matrix:
Analyzing Profit and growth
Chances to earn good profit
Hi
Lo
Chances for organic growth
Hi
Strong
Average
Lo
Average
Weak
Analyzing Resources and Working capital and capital budgeting tradeoff between debentures and equities
Chances for utilizing resources efficiently and effectively
Hi
Lo
Chances of capital budget
Hi
high loans, hence risky, but because of better resources utilization, we are saved, Average performance
pathetic situation – high risk and also poor resource utilization, we better off sell ourselves
Lo
low risk, good utilization, we are super STRONG, we can go shopping and buy other companies and call it as acquisitions
low risk, low utilization, we are just surviving
Analyzing Penetrate market and Production volume with quality
Chances of penetrating the market
Easily
With challenge
Chances of productivity
Hi volume
Strong
Average
Lo volume
Average
Weak
Analyzing Finance and Technology savvy
How stable our finance is?
Very stable
Unstable
Technology – latest and greatest
Hi tech
Powerful
not so powerful
out dated tech
Weak
Struggling
Bargaining power of Supplier and consumer
supplier
Hi
Lo
Consumer
Hi
we are Weak
we are just breaking even
Lo
surviving
we are Strong
2. Customer Loyalty:
Why is it hard to satisfy a customer and make them to come back; Loyalty means repeated customers. The answer is it is just the very nature of the industry – Finding a partner, your soul mate is not an easy joke – you need to meet face to face, spend time together, build trust, get to know each other, even look at sun signs also.
E.g. Libra and Gemini are the best matches.
Many customers go away and find a new provider because the existing providers are not competent enough.
Customers quit because they are sick and tired of this online dating burden – so many companies block the contact details until they suck a good deal of money from the customers in the name of fees and payments – this is a real rip off – I personally went to a dating service provider in Australia and they asked me to pay $600 upfront in order to introduce a single potential match
John Stella – potential match but failed – paid $ 600
John has to look for Rosy , pay another $600, – if this also does not work out
Then John has to go and look for Melanie – it may not work out as well
So, so far, John had paid $1200 but still hunting for his life partner – this is very unaffordable for John. So he might think why don’t I just go to a local pub and pick up some body – it would just cots me few drinks = < $100
So that’s why customers like John simply STOP buying from such incompetent providers.
This is certainly a suicidal industry to 60% of the extent. Very rarely they succeed to find a soul mate online or by this virtual match making services.
The way to survive and shine is to change the business model.
The dating providers must do the following:
3.
Segmentation strategies:
Categorize the entire market according the following metrics:
Differentiation Strategies:
For a dating provider to succeed, there are 2 sub strategies under the main strategy of winning over the rivals in this in sane world of cut throat competition.
You have to stand apart – like that age old Johan-than Siegel – you must be differentia table by means of that DERK where D = Differentia table, E = Esteem ; R = Reputation by established customer loyalty, and K = Knowledgeable;
We focus on D:
Pricing:
Competitively priced, priced lower than out rivals; lowest cost in the market and also reliable quality;
Economical Advertising strategies are not possible in dating services:
Spending maximum 2% of our revenue in advertising may work out for other industries but not for dating provision, because a satisfied customer is an indirect advertisement in other industries but not in dating – s/he will spread the good word throw feedbacks and consumer review in our web sites for other industries – but not for this dating industry – hence we suffer here also!
The difference between segmentation strategies and differentiation strategies:
In segmentation we focus on where the customer is from, his ethnicity, nationality, age, income, attitude etc
But in differentiation we focus on our selves – how cost effective we are as a company to provide dating service, how efficient is out advertising etc
Analyzing Profit and growth
Chances to earn good profit
Hi
Lo
Chances for organic growth
Hi
Strong
Average
Lo
Average
Weak
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