Startups: Your Online Dating Site Will Fail

Online dating sites fail because online dating fails. The simple reason is that everyone expects quick results, no one can make that happen, and users get very unhappy very quickly. So please don’t send me any more business plans along these lines, looking for investor funding, with no marketing budget, and promising huge returns.

I certainly understand why everyone wants to take a shot at it – the “need” is huge. In the US alone, the target demographic for these services is the 90 million singles that are between 19 and 45 (not counting the fact that 40% of frequent users are married already). Some say that’s a billion dollar “recession proof” opportunity.

But make no mistake about it, this is a tough market to enter at this stage. Here are a few of the reasons, from a business perspective:

• Direct competition is huge. There is no opportunity for “first mover” advantage here. Online Dating Magazine estimates that there are more than 2,500 online dating services on the Internet with 2-3 new services opening every single day. Out of all these services, it estimates that more than 90% will fail or never turn a profit.
  


• No longer a growth market. After years of dramatic growth in the 70-80 percent range, online dating revenues have leveled off in the US, according to a recent study. Subscriber numbers are actually falling slightly. Lawsuit claims and Nigerian con artists are up, and disillusionment is growing. The honeymoon is over.
  


• Entry cost is very high. This business suffers from what Paul Graham calls the ‘chicken and the egg problem‘ – no one wants to use a dating site with only a few users. So sites have to invest heavily in viral marketing to achieve critical mass, which competes with current social networks, while users expect to join both for free.
  


• Intellectual property is tough. It’s hard to invent and patent more “scientific” methods on how to match people. Most people, especially women, don’t even want to feel like they can be ‘matched’ by a computer. E-harmony.com has already defined the 29 DIMENSIONS® of compatibility, how many more could there be?
  


• Social networks and search engines. Facebook and Twitter are desperately trying to monetize their following, and online dating is an obvious candidate. Online dating is an extension of existing online social activities – just like real life. Or how about the next generation search engine, answering the question, “Who is my ultimate soul mate?”

Perhaps I shouldn’t suggest that no one can win in this space. Online Dating Magazine says that maybe one in ten will succeed, which is about the same ratio as for startups in general. What I am suggesting is that you won’t find many angel or VC investors who are interested. Plan to focus on that other popular tier of investors – founders, family, friends, and fools.

Now that I think about it, most of these same considerations apply also to all the new social networking startup proposals I see, and all the new search engine business plans (except the soul mate one). Investors are looking for real innovation, not copycats with more bells and whistles. So are customers. Let’s give it them.

Marty Zwilling