OPW INTERVIEW -- Sep 19, 2005 -- Nate covers the online personals industry for Jupiter Research. Before joining Jupiter he spent the internet boom years working for Doubleclick (4 years) and with Macromedia. He took a break and then decided that being an analyst would be an interesting way to satisfy his curiosity.
Why do you work from England?
I worked in Jupiter’s New York office for 2 years. I wanted to move to Berlin but Jupiter doesn’t have an office there. We did have an office in London, so they said I could move here. I got here February 1st. I live in Clapham and work in Soho.
What other areas do you cover?
My primary area of research is European digital home technology, which includes consumer electronics and entertainment technology. I cover HDTV, DVR's, home cinema, game consoles, home networks, portable media players and a range of other devices and technology focused around home entertainment. Online dating and social networking and other online media are a smaller part of my job. I get to play with iPods and Playstations and TV sets and I get to talk about online dating. I'm traveling a lot for work and fun...I was on the road 20 days last month.
Where is the industry headed?
The U.S. online dating market is headed for slower growth and a harder slog. Fewer consumers are showing up at the sites, and fewer are posting profiles. To keep growing revenues sites have to do a better job of converting visitors to paid subscribers. The good news is, they are getting better at that. We've seen the number of visitors to dating sites drop by about a third in the last year. But the number of paying subscribers is still rising marginally, which is interesting – it’s proof that conversion rates are improving. Online personals sites are also getting better at taking more money from each subscriber. Sites with a focus on serious dating are able to charge higher monthly fees. Sites are also focusing more on 3-6-12 month memberships that extend the lifespan of a user. I see sites getting more creative in terms of turning browsers into subscribers, because they have to.
Why is the number of unique users falling?
The market is reaching maturity. Two things have happened. First, people have already gone through online personals sites for the first time. Some subscribe, and then about half of them come back for a second go. And some visit but don’t subscribe. It gets to a point where so many people have visited these sites and decided whether they want to use them, so there are fewer consumers ‘just curious’ to have a look. It's no longer the 'new thing’. That’s probably why we are seeing higher conversion rates now – there are fewer window shoppers. Second, the satisfaction ratings on most dating sites aren’t fantastic. We did a survey this January, and 35% of online daters were somewhat dissatisfied or very dissatisfied with the sites. Only 29% were somewhat satisfied or very satisfied. If you have more dissatisfied users than satisfied ones, eventually it's going to lead to fewer users. I think that over time, you’ll see more sites focus on just casual daters or just serious daters. The services that focus have a better chance of attracting a good audience and making that audience happy. Users self select by choosing a site – does the site market itself as a serious dating site or a casual dating site? Most of that comes down to marketing because the sites themselves are not that different. The technology and features are fundamentally the same. Their differentiation is more a factor of which audience they’re targeting. By targeting one audience or the other, and building a user base with common goals, they may be able to improve those satisfaction scores.
What are the differences with the European audience?
The European online personals market is growing pretty aggressively, which differentiates it from the U.S. industry. The U.S. dating industry will continue to grow over the next 5 years, but it’s not growing like it used to. The US market grew 72% in 2002, and 77% in 2003, but will only grow 9% in 2005. Still, we’re forecasting it’ll grow to $516 million this year, and reach $623 million in 2009. (These numbers do include adult dating). Europe is still seeing that impressive growth. The European industry brought in 88 million Euros last year, and we’re forecasting it’ll reach 160 million Euros in 2005 and 352 million Euros in 2009. That’s 82% growth from 2004 to 2005. So the growth is a lot faster in Europe than in the US, but it’s on a smaller base. Over time, the European market will follow the same curve as the US market, and will shown this same pattern of maturation. The population is larger in Europe, but the market differs in a couple of ways. European online content and services tends to lag a couple of years behind what we see in the U.S. It's also a more difficult market; dealing with a couple dozen countries, different languages and national borders – which matters more then some of the U.S. companies might think. There are also different media preferences to consider. In Europe, you can’t cut one or two portal deals and cover the entire market. Each country has different portals, and even the multinational portals sometimes cut separate deals in each country. It’s all a much more fragmented landscape than you see in the US.
What are your thoughts on the relationship sites and personality profiling?
It seems like eHarmony is doing a great job helping to grow the industry as a whole with their TV advertising?
They are. But I wonder how much it has to do with personality profiling and how much with media spend. I think serious dating would have been a growth area anyway, but it's certainly growing more because of the money they're spending and the attention they're getting. And that has fed back into industry growth. I think personality profiling is interesting but clearly not necessary. Self-selection is the more important piece. The relationship personals sites are marketing themselves to serious daters. That marketing focus is the biggest piece of the puzzle. Users go to those sites because they’re looking for serious relationships, and they find other people looking for the same thing, and so you’ve got a database of like-minded individuals. The actual profiling becomes almost secondary. But, the problem is, the serious dating sites have created high expectations. They say “we’re going to find you the love of your life,” and that’s really hard to actually do, and so their satisfaction scores tend to be lower. There are also examples of profiling being used in casual dating, like at Tickle, and there are basic efforts from Match and Yahoo. But, if the idea is to have fun and do introductions for casual relationships then profiling is not a necessary part of the strategy. For serious daters however, personality profiling is the kind of marketing message that resonates.
How will online personals sites extend beyond the web in the future, in 5 to 10 years time?
I don't think anyone has done a good job extending their brand beyond the internet. There have been some interesting attempts. Comcast (cable operator) teamed up with Hurrydate (speed dating and personals) to provide personals on cable. There have been some efforts in the mobile dating space. They're all interesting ideas, and in theory they all should work, but none of them have. I think the offline singles services are the only other format that can compete. Events have advantages – they’re fun, social activities, and there’s no substitute for meeting someone in person. However, online services have something that offline can't offer; a combination of depth and anonymity. That sets them apart from event services, mobile services, classified ads in the newspaper, and introduction services. No other format offers the level of depth – lots of details and photos and forms to fill out and chances to interact – combined with anonymity. That’s why online personals work so well. $500 million a year is a pretty big industry. It's twice as large as any other category of paid content online. This is a big industry. The reason it's gotten to this point is that the internet really is the ideal medium for searching for singles. Lots of companies think they can take their user-base and extend to other media, but they’ve had some real difficulties. It's not that they are doing it wrong. It's just that the users understand they are already in the best medium: online. Even when we get to a point where mobile dating offers a better experience, I don’t think it’s ever going to be massive. Mobile dating is good for some things; for people who are bored in line at the post office and college students who would rather look for profiles on their phones than pay attention to class. It's not as good an experience as online but it is useful for anyone with spare time away from their computer. At the end of the day, though, online is always going to be the biggest piece of the puzzle.
What observations would you like to share with the CEO's of the industry?
A lot of the smaller players look for bells and whistles to add to their sites. They're looking for angles they can use to differentiate on, and market their sites. It's got to be hard to compete with a couple of monsters like Match and Yahoo. Those two, plus eHarmony and Spark Networks, take up so much of the mindshare and the money in this industry that other companies are dwarfed. But at the end of the day consumers don't seem to care about the bells and whistles. They want a critical mass of users in their local area with lots of photos and deep profiles. Deliver that and you have a good product. Most users just want online personals sites to do the basics well. All the rest is superfluous.