How Many More Online Dating Sites Do We Need?

Online dating sites usually fail because online dating usually fails. The simple reason is that everyone expects quick results, no one can make that happen, and users get very unhappy very quickly. Even the main industry rag, Online Dating Magazine, admits that the success rate is a mere one percent, compared to an estimated fifty percent for startups in general.

I certainly understand why everyone wants to take a shot at it – the “need” is huge. In the U.S. alone, the target demographic for these services is 90 million singles that are between 19 and 45. Then there are the forty percent of frequent users that are already married. Some say that’s a billion dollar “recession proof” opportunity. The spend is still going up.

But make no mistake about it, this is a tough and oversaturated market to enter at this stage. Here are six key reasons, from a business perspective:

• Direct competition is huge. There is no opportunity for “first mover” advantage here. The same Online Dating Magazine estimates that there are more than 2,500 online dating services online in the U.S. alone, with 1,000 new online dating services opening every year. Some estimates say there are 8.000 competitors worldwide.

• Online dating fraud is on the rise. Online dating fraud rose by 150% percent in the last couple of years as scammers and hucksters turned up the false charm and predatory trolling, according to a recent article on Mashable. 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. “Social networking” is really the new term for dating, with mega-sites like Facebook, and the hyperlocal site Foursquare. After all, isn’t dating all about making new “friends,” and finding them in all the right places? The latest is Facebook Graph Search, unveiled last month, to help you find the perfect match on the social network.

• Sophisticated search engines. I’m already seeing search engine parameters that can match image features, so singles will soon be able to search cyberspace for their ideal partner, without the need to join any dating site. 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. However, because 99 out of 100 fail, and because some have an unsavory reputation, 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.

Certainly if you expect to get any traction in this market, you need some real innovation. The trend is to more mobile and niche markets. But you better hurry, because potential winners like Dating.Mobi, Herpes-Date.com, and DateMyPet are already taken.

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. Investors are looking for real innovation, not copycats with more bells and whistles. So are customers. Let’s give it to them.

Marty Zwilling