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As online dating grows, bigger barriers for new players


Online-dating sites and apps will get a post-Valentine's Day bump this week—and then a drop. On the Monday after Valentine's Day, Match.com sees a 15% increase in communication activity on its site. In the days leading up to Valentine's Day, OkCupid, which is also part of Match Group (MTCH), sees a 15% increase in new sign-ups. In fact, from the day after Christmas to the day after Valentine's Day, Match sees a 60% increase in new member registrations. Mobile app Hinge also has its "high season" from Christmas to Valentine's Day, and then, CEO Justin McLeod says, "it falls off right after Valentine's Day."

Those looking for love are looking to online-dating services more than ever, even though they have fewer options for it than they did two years ago. According to a new report from the Pew Research Center this month, usage of online-dating sites or apps by 18- to 24-year-olds has tripled since 2013. And it isn't just the young: Usage has doubled among those between ages 55 and 64. Overall, 15% of Americans have used an online dating site or app, up from 11% in 2013.

At that time, the bubbly market was just beginning to explode, and it was friendlier to small new entrants. Tinder and Coffee Meets Bagel both launched in 2012; Hinge launched in 2013; Bumble, Happn, JSwipe, The Grade, and The League all launched in 2014.

In 2015, the march of new dating apps slowed to a crawl. Instead, the story of the year was the IPO of Match Group, the division of InterActiveCorp (IAC) that housed its dating properties, including Match.com, OkCupid, and red-hot mobile app Tinder. (It also owns Meetic, Twoo, BlackPeopleMeet, PetPeopleMeet, LittlePeopleMeet, and the list goes on; there are 50 sites in its vast portfolio.) IAC, through Match Group, has long been the acquisitive king of the online-dating business. Sam Yagan, who co-founded OkCupid and sold it to IAC in 2011, described this to Fortune in no uncertain terms in 2013: If you want to create a new online-dating platform, he said, "You’re going to launch, you’re going to get some success, and I’m going to buy you for cheap because you don’t have another bidder."

Indeed, in the last two years IAC, through Match Group, bought PlentyofFish, HowAboutWe, Pairs and Couples (a Japanese site), and FriendScout24 (Germany), among others, as well as non-dating content sites like Tutor.com and The Princeton Review. And Match Group isn't the only buyer: Badoo, a huge online-dating company based in London, this month acquired Lulu, a U.S. app that lets women rate and review men they've dated.

After a period of flooding the market with new dating services, consolidation came, just as it has come to bitcoin and to beer. One online-dating executive, who did not wish to be named, says that for new dating apps, "the odds of success right now are basically zero."

A growing market, but a shrinking pool of players

With the mega success of Tinder, and the Match IPO, the landscape has shifted. Two of the industry's three biggest players are now public: Match Group and Spark Networks (LOV), which owns JDate, Christian Mingle, and others. One of the oldest web sites in the space, eHarmony, which launched in 2000, remains private. The most recent IBISWorld report pegs the online-dating market at $2.4 billion in size, up from $2.1 billion in 2013, though other experts say that figure is low. The industry has grown at more than 3% each year since 2008.

"It was definitely a frothy funding environment like two years ago," says McLeod of Hinge. "People saw Tinder and its success, and said, 'I can do this better.' They were chasing this opportunity. But ultimately, Tinder is the gorilla in the casual end of the spectrum, which is our space. Tinder has the lion's share. Maybe one or two of these other ones will survive, and be profitable, but the only reason they exist right now is they’re operating off venture capital. Very few of the newer apps will end up lasting. Most of them are gone almost as quickly as they show up."

OkCupid's chief product officer Jimena Almendares agrees. "I think the market is more difficult now for small apps, because you need liquidity," she tells Yahoo Finance. "It’s like a social network, you need to have people using it to get more people to use it. If you visit a product and there aren’t that many people to see, the likelihood of you coming back is going to decrease rapidly. Even though online dating is growing and it’s a more normal thing than ever, it’s hard for new sites because they can’t get enough people."

If a vast supply of users (i.e. potential dates) is crucial, OkCupid, Match.com, and eHarmony enjoy a built-in advantage simply by having been around the longest; they are the industry's incumbents. But the influence of Tinder cannot be overstated. Its swipe functionality has shown up not only in other dating apps, but across many areas of mobile tech. Tinder, only three years old, is now almost always mentioned along with the big dogs Match, eHarmony, and OkCupid, which all launched over a decade ago.

The speed at which Tinder has grown shows that a new entrant can succeed, even if it's now harder. That means both new and old players have to differentiate themselves and make their brand identity clear. Hinge, McLeod says, sees itself as the most serious of the casual, mobile-only offerings. "If zero is hookup, and 10 is long-term relationship, we’re like a 6 or 7 right now on that scale. Most of the casual apps are like 4-6, with Tinder further to the left than that. but there isn’t an app that is an 8 or a 9 yet, which is where eHarmony and Match have missed an opportunity," he says.

That's a common criticism of the larger companies, which launched as web sites -- they've been slow to innovate on mobile. Almendares, of OkCupid, has a retort: "We don't have a problem on mobile," she says. "OkCupid, since the very beginning, had a nimble app where it was not about trying to copy or distill everything that was on the web site, but offering a different experience tailored to mobile."

To that end, OkCupid has rolled out new features like Quick Match, a swipe-section that Almendares readily acknowledges is inspired by Tinder, and, in January, it began allowing two people to link their profiles if they are part of a couple that is seeking another partner. (This is a brave new world, folks.)

Match Group boasts 59 million monthly active users across all its properties globally. (It doesn't break that number out for OkCupid or Tinder.) Some estimate the company has a nearly 50% share of the online dating market. Match took a risk by going public when it did, in a dire period for tech offerings. Shortly before Match's offering, Zoosk Inc., which launched in 2007, formally canceled its own IPO.

On the public market, Match has fared just decently: The stock is down 20% in the three months since it debuted, but up about the same amount in the last week. BTIG Research upgraded the stock on Tuesday, helping to give it a 4% bump in mid-day trading.

The bigger question moving forward is whether Match will continue to be as acquisitive as it was when it was part of IAC, or if going public will slow that trend.