Tinder’s success has definitely helped fuel an explosion of dating apps but it is still as hard as ever trying to make a $ in the dating industry.

In case you didn’t know, one of my earlier businesses was a dating website called WooMe.com. We launched back in 2007, enjoyed an amazing ride, raised more than $17 million in venture capital, building a great company with offices in London and Los Angeles, millions of users around the world, strong revenues and were eventually acquired by one of the leading sites today, Zoosk.

I can tell you first hand building a dating business sux. It is tough on a variety of levels, not least of all creating a pool of users quickly, trying to get them to eventually pay something, and then the big one – the ultimate irony that the better the product you build – the faster you lose your users. That’s right – happy people in relationships don’t need your app any more. Sigh. LTV (Lifetime Value) in dating sites is a struggle.

Today we have all kinds of interesting options like Happn, Coffee Meets Bagel and even a Tinder clone from one of the ousted cofounders called Bumble. We’re spoilt for choice.

In July 2015 one of the old school dating sites – Plenty of Fish – finally gave in to IAC and sold for $575 million. Definitely not a bad deal for Markus Frind. Maybe he’ll find it easier to get a date now.

 

But let’s have a look at some details.

How Big is the Market?

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. I wouldn’t call that huge.

The App 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. That’s a lot of competition (but a lot less than photo apps).

More than 10 other dating companies were acquired in the past year, two by Barry Diller’sIAC/InterActive Corp., 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.

And when you look at the cash venture capitalists are putting in ($148.8 million into the dating industry since early 2010, according to Dow Jones VentureSource), it’s not a lot.

Pressure

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,” saidPatrick Chung, co-founder and partner at venture-capital firm Xfund.

Getting Users

At WooMe we burnt through millions and millions to hunt users ~ at one point we were the biggest advertiser on Facebook ~ hitting a billion impressions within a few months of starting on the platform. It worked for us because we were early, but we quickly had to find other cost effective channels.

“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.

The Reality of Tinder

The majority of app entrepreneurs don’t really grasp the fact that Tinder was incubated by IAC. The Tinder team own a rather small percentage of the actual company (rumoured to be 5%). 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.

There is no doubt that Tinder is a great app – brilliant interface, super simple, and well executed – but let’s remember that it was IAC fire power that provided initial traction, users and global reach. It wasn’t magic.

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— Check out this link for the WSJ story