I was hanging out with a friend of mine a couple of days and we started chatting about the online dating space. As we were talking, we both started nodding our heads in agreement that as an outsider, the space seems relatively interesting for a couple of reasons:

  1. Unlike the vast majority of the consumer web, people are actually conditioned to pay for online dating and there is an established SaaS model.
  2. Users seem to be open to trying new apps and sites – in the last few years several new sites have become popular like tinder, HowAboutWe, and grindr.
  3. There’s a high degree of fragmentation with dozens of sites targeting specific user segments – Christianmingle.com, Farmersonly.com, and Bbbwdating.com

Obviously, life isn’t all rosy starting or running an online dating site since there’s an obvious “chicken/egg” problem, a significant user churn rate, and of course strong competition. Anyway, since Spark Networks (owns JDate and Christian Mingle among others) is a publicly traded company I decided to skim through their annual report in search of interesting tidbits. Here’s a couple of the most interesting things:

From The Spark Networks Annual Report

  • On most of our Web sites, the ability to initiate most communication with other members requires the payment of monthly subscription fees, which represents our primary source of revenue.
  • We hold two United States patents for our Click! technology, the first of which expires January 24, 2017, that pertain to an automated process for confidentially determining whether people feel mutual attraction or have mutual interests.
  • Click! is important to our business in that it is a method and apparatus for detection of reciprocal interests or feelings and subsequent notification of such results. The patents describe the method and apparatus for the identification of a person’s level of attraction and the subsequent notification when the feeling or attraction is mutual.
  • For the year ended December 31, 2012, we had 259,244 average paying subscribers, representing an increase of 32.0% from the year ended December 31, 2011.
  • Revenue for the year ended December 31, 2012 increased 27.3% to $61.7 million from $48.5 million in 2011.
  • Net (loss) Income and Net (loss) Income Per Share. Net loss was $15.0 million, or $0.72 per share, for the year ended December 31, 2012, compared to a net loss of $1.6 million or $0.08 per share in 2011.
  • For 2011, the CEO of Spark took home a total of $990,000 between cash and equity.

Some interesting stuff there. Looking at their revenue number, a little back of the envelope math would suggest they’re averaging around $20/mon for subscription revenue since 260k users x $20/mon x 12 months is roughly $62 million.

Ok great, but where are the opportunities? Looking at AngelList the majority of startups seem to be focussing on building traditional dating websites with a unique hook like “date friends of friends”, “ivy league dating”, “gamified dating”. Unfortunately, given the intense competition, chicken/egg problem, and capital that companies like Spark and IAC are spending on marketing I don’t think starting a new dating site is currently the best play. I think focussing on “selling the tools to the miners” is the best bet right now, potentially around a couple of themes.

Concierge Service

Think a virtual assistant like FancyHands but specifically aimed at online dating. Need a couple of great date ideas? The concierge has you covered. Need some help writing or polishing up your profile? Covered. As a business perspective, you’d generate monthly subscription revenue with the opportunity to generate additional revenue via referrals while costs generally increased linearly. There are a couple of companies doing this already but no one has serious traction.

Meta Search Engine

It’s 2013 and users are still effectively stuck searching one dating website at a time looking for “mr right”. You would fix this by building a “meta search engine” to allow users to search all the sites they’re a member of at the same time from a single interface. There are obviously technological as well as legal constraints to this but I think the potential value add is huge. Running this as a business would be tough since you’d always be at the mercy of the individual sites who would be well within their rights to shut you down like Craigslist and PadMapper. But who knows, maybe you could negotiate favorable terms in exchange for pushing users to register for new sites.

Browser Extension Power Tools

The goal would to build a handful of “power tools” to improve the overall experience of online dating. Example tools might be a Bayesian spam filter to learn what users flag as “spammy” and automatically block similar messages. Or maybe an “expert advisor” that analyzes messages you send and recommends changes in order to improve your response rate. The business model would be simple, sell the extension in the Chrome Webstore and charge a monthly subscription fee.

Anyway, just some off the cuff ideas – would love to hear any feedback or other ideas.