More than ever before, love is for sale.
From white-hot apps like Tinder and Grindr, to popular sites like OkCupid, Match.com, Plenty of Fish, and JDate–among other services aimed at specific demographics–more and more companies have come to fully embrace the big business of eros.
This is not, however, a new phenomenon. No, our story begins in 1965 when three Harvard students (plus Cornell dropout Douglas Ginsburg, later a Ronald Reagan–nominated appointee to the Supreme Court) designed a computerized system to “have some fun . . . and to meet some attractive ladies.” They called their invention Operation Match, and it involved feeding information into a five-ton IBM 1401 mainframe computer to find dates for tens of thousands of students who paid $3 and filled out a questionnaire. “Operation Match was really the first system of its type that used technology and was inexpensive and used mass marketing,” investment advisor Jeff Tarr said in a 2003 look back at the company he cofounded. Soon after Operation Match got off the ground, a young accountant and an IBM programmer came up with Project TACT–New York City’s first computer-dating service. And yet, despite beginning with a rapturous bang, computer-assisted dating like this and, later, dating chat rooms and video dating, remained something of a nerdy curiosity for the next three decades.
The next big industry shakeup arrived in 1979 with a new patent, which Match.com later referenced several times, for an “interpersonal-introduction signaling system.” This tech utilized a pocket-size “receiving and transmitting transceiver” with a “relatively short-range” response. A coding system would allow users to send and accept messages. Here was, essentially, an early form of location-based social discovery.
During the 1990s, as digital photography became more accessible and images could be posted online, social-networking websites like Kiss.com and Classmates.com emerged. Match.com, now the biggest player in the digital dating field, went live in 1995 and launched the age of mass online dating. This fee-based website, with its relaxed let’s-have-coffee-first approach, was, and is, the first choice of baby boomers, who seem more interested in long-term partners than slap-and-tickle buddies (not that there’s anything wrong with that). They’re also, it seems, willing to fill out the site’s time-consuming profiles. What Match.com lacks in élan, it makes up for with highly rated search and filtering options. Still, the dating masses weren’t sold and declared online dating was for losers who couldn’t find a date any other way. It was an assumption left over from hundreds of years of matchmakers and, later, personal ads. “Advertising for a husband and wife has always attracted criticism, and the people who did it were always thought of as failures in some way,” according to British author and history lecturer H.G. Cocks. There was, as well, a history of online deception from dishonest suitors.
Privately held eHarmony, the other giant of fee-based dating sites, was founded in 2000. Its practice of algorithm-based matches with detailed profiles and an emphasis on long-term coupling has made it the number two dating service company today, with 13.8% of the U.S. dating services market, according to market researcher IBISWorld. U.S. revenue of Santa Monica–based eHarmony could reach $310 million in 2014, up 6.9% year to year.
Meanwhile, the free dating and social-networking site OkCupid, a key player in IAC’s Match division since it was bought for $50 million in 2011, showed up in 2004 with nifty algorithms that, like eHarmony, sought to make sense of big data sets. Claiming that “most other matching sites are just glorified personals services,” with matching systems that are “nonexistent or overly subjective,” OkCupid calls itself “the fastest-growing online dating site,” which uses math “to get you dates.”
Tinder was born in the summer of 2012 inside L.A.-based Hatch Labs, the mobile apps incubator for Barry Diller’s IAC/InterActiveCorp. Majority-owned by IAC, Hatch was closed at the end of 2012, and Tinder was folded into IAC, ultimately finding a home within IAC’s Match group, where Match.com and OkCupid also live. Personal Media is also in the IAC stable, offering dating sites with focused demographics like BlackPeopleMeet.com, OurTime.com for singles over 50, and LoveandSeek.com for Christian singles. “We saw a need for social networking with people you don’t already know,” Jonathan Badeen tells us. Badeen, one of a handful of Tinder’s initial twenty- and thirty-something founders, developed the app’s front end. He remains at the company as VP of product.
“We looked at the world and built this. No other app or service or site or patent inspired us. We built it from scratch and were inspired by the real-life challenges of meeting people and the challenges of digitizing how people meet and interact. There are a slew of things we did in a unique manner [like preserving privacy by swiping right to accept and left to reject], and ensuring safety [by requiring both parties to opt in before they can message each other]. It was a very passionate and talented group of people. We put in plenty of all-nighters then, and we’re still working our butts off. It really illustrates how much [Tinder] was needed.”
Tinder gave the online-dating industry swagger with a cool app stocked with thousands of potential playmates near you. A deep database of photos propelled the intended social-networking app into a dating and hookup app, but it also revolutionized the way young users greet and meet. On today’s Tinder, there are amazing success stories, like the research scientist in Antarctica who on a whim searched Tinder and matched with another scientist who was just a 45-minute helicopter ride away. Plenty of engagements also sprang from Tinder meet-ups, though new studies say most Tinder-sparked relationships are short-term and result in more breakups than meeting the traditional way. What’s more, sexual hookups seem to be less satisfying when Tinder is the go-between. There are also plenty of creeps on the app, like the many unfiltered men spewing bleak and misogynistic sex messages. Plus, it has attracted a phalanx of adult webcam services and fake profiles that the company tells Fast Company it is fighting with a “technical solution.”
Within two years of Tinder’s August 2012 iPhone app release, it is a top 100 app in the iOS store of 40 countries that’s generating 12 million daily matches across the globe. With a quick and quiet whoosh, some 10 million daily active users perform more than 750 million daily swipes in more than 150 countries, making it an authentic phenomenon in the expanding computer-based social-networking space. It hit especially big with millennials: 50% of Tinder users are 18-24 years old; 33% are 25-35, according to Tinder. With lightning speed, it ingratiated itself into world culture such that “tinder” is now a verb and some 30 new Tinder-related words like “tinderella” and “tindercide” populate the hipsters’ Urban Dictionary. Match.com has been paying attention, naturally, and launched Stream, its own mobile, location-based app, in April 2014.
Tinder was designed to be fun and easy to use on smartphones. The basic concept, “which seemed to come really intuitively . . . remains unchanged” from the time Tinder was first hammered out, says Christopher Gulczynski, a Tinder founder and chief creative officer until he left in late 2013.
The app can be druglike for both single and voyeuristic married users. Millennial men scan pictures of women on Tinder as if they’re flipping through pages of skin mags. Being able to safely shop for and possibly connect with people you haven’t met appeals to women. This privacy factor may have been on Jimmy Fallon’s mind when he recently set up newly single Britney Spears with a Tinder profile live on the Tonight Show.
Developing Tinder was not all flowers and chocolates. As a result of fights with CEO Sean Rad, a serial entrepreneur, over “our ways of doing business,” Gulczynski says he and Rad are “not on speaking terms.” And “with the lawsuits and other stuff, it’s a little bit disenchanting,” he says. In September, another former cofounder, Whitney Wolfe, who had been marketing VP, settled a lawsuit she filed in June claiming sexual harassment and sexual discrimination, which appears to have opened a wider discussion of sexism in the tech industry. A statement from her lawyer said Wolfe’s “lawsuit against Tinder has been resolved without admission of wrongdoing.”
Such missteps haven’t cooled Tinder’s marketplace heat. It continues to engage the millennial audience, for whom it diminished the old stigma that online dating was for losers. Millennials also appreciate that it’s free and mobile based. Those advantages are not going away. Older users like baby boomers tend to stay with subscription-based websites like Match.com and eHarmony, placing their long-term growth prospects in jeopardy.
For now, online dating websites like these account for 49% of the U.S. dating service industry, followed by mobile dating (26%), matchmakers (14%), and singles events (7%), says top market researcher IBISWorld in a new report. IAC’s synergistic practice of keeping like properties together has earned it one-quarter of the current $2.2 billion U.S. dating market, double the size of its next competitor, eHarmony, at 14% and far exceeding Zoosk’s 5%. In the U.S., IBIS says, revenue for the mobile-dating market, led by Tinder for heterosexuals and Grindr for gay men, is expected to nearly double in the next five years, with rising smartphone adoption and new location-based features leading the market. This will be key in propelling total U.S. dating-industry sales to an estimated $2.7 billion in 2019.
Financial analysts recognized Tinder’s potential early on. In March, Cowen & Co. analyst John Blackledge upgraded IAC stock to outperform, upping his price target from $71 to $92, based on expectations that IAC’s dating units will drive “margin expansion over time.” He foresees that Tinder will have 28 million monthly users by year-end and notes that Match.com has a 22% market share in the area of dating websites and “the highest U.S. reach and time spent on mobile and desktop” in the online-dating space.
In September, Christopher Merwin, Barclays Bank VP for Internet equity research, upgraded IAC shares from $72 (equal weight) to $87 (overweight) due to “growing revenue” opportunities for Tinder and for Vimeo, another breakout IAC media property that Merwin predicts could generate $108 million in 2015, up 73% year to year.
More remarkable: He anointed Tinder with its first public valuation, a whopping $1.1 billion, which assumes Tinder’s growth and monetization ramping up in 2015. He says he expects Tinder to further penetrate global markets like the U.K., Brazil, and India, growing daily active users to 20 million and monthly active users to 40 million by year-end 2015. In the U.S. alone, he tells Fast Company, “we suspect the Tinder user base is 51 million singles [about 50% of all U.S. singles over 18]. It’s an addressable market that’s growing as more and more singles become open to online dating . . . The newer app base will appeal to a much younger demographic.”
Merwin based his valuation on estimated Tinder 2015 revenues of $180 million, derived from the app’s initial monetization of “serving ads, offering freemium subscriptions, and incorporating microtransactions.” The ad model, he said, is “not difficult to get users to approve and is not disruptive to the user experience.”
In five years, says Merwin, “there will be a lot of competition, but I think these platforms will become more viable and usable according to scale. Tinder has built a critical base of users and will be a scale player and that lends itself to sustainability, mainly in the U.S. Anyone with a smartphone and a connection can use Tinder.” (Competition from another location-based dating app, Hinge, has already got some users in tech-savvy San Francisco leaving Tinder or using it in tandem. The hitch: Unlike Tinder, Hinge matches you with friends of friends.)
Gulczynski, who’s developing a music-video app that incorporates left and right swipes, is not so sanguine: “Development cycles are getting faster and faster. There are literally hundreds and hundreds of [Tinder] clones coming out, proving that the market is viable and money can be made. [Swiping left or right] has quickly become the convention. We came up with this, and it was revolutionary and groundbreaking.” But can Tinder withstand all this new competition? “It’s a tough question. It’s all about staying relevant. It depends on monetization, engagement numbers, strategies, and keeping users using the app.”
Badeen sees Tinder’s use widening in years to come. Right now, he says, “Tinder has no direct competitors. In the dating world, no one is really doing what we do. And it’s really becoming closer to a social network for romantic partners, business partners, recommendations when you’re visiting other countries. It’s becoming a common take-along when you’re in any unfamiliar territory.”
For Badeen, Tinder users will naturally cast a wider net over time. He believes the app has ushered in “a new era via your phone to discover those around you.”
All of which reminds us that as far as we’ve come in terms of gaming love and sex, the biggest question remains: will discovering those around us lead to either?