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Tinder Plus and the Business of Online Dating

Tinder's new monetization model is raising some basic questions for those unfamiliar with the business of online dating.

by Meg Charlton
Mar 6 2015, 4:15pm

Photo vai Flickr

This week, the popular dating app Tinder rolled out its new paid "freemium" option, Tinder Plus. And now, a huge amount of users are completely pissed off. To quantify the scale of the negative reaction, take a look at the app store ratings: On previous versions of Tinder, well over half the reviews (67 percent, to be exact) gave Tinder four or five stars. The current version is averaging one star.

Angry reviews aside, Tinder's new monetization model is raising some basic questions for those unfamiliar with the business of online dating. In a word: Why? Why introduce a paid service that "angers" users and makes your company look "ageist?" Why have people subscribe at all? Why not just show ads?

It's not unusual for a large social network like Tinder to see its user base explode without turning a profit; Twitter's massive, nearly overnight growth is a prime example of this. But eventually, these apps and sites do need to make money off their users. Twitter has since done this through advertising — it brought in $1.4 billion in revenue last year, and not through user fees. But this exposes the fundamental distinction between the way dating sites monetize versus how other social networks make money.

So the short answer to the "why" question? In general, dating sites need to charge their users to bring in revenue, because users will pay, and advertisers aren't paying much.

Tinder's basic premise is simple: Users flip through profiles of locals, swiping right to show they're interested and left to show they're not. If two users both swipe right, they're a "match" and can message each other. Tinder Plus introduces two new features to paying users and, indirectly, creates two potential negatives for those who don't pay, one of which alters a core aspect of the Tinder experience.

Tinder Plus users can access the Passport feature, which allows them to swipe through profiles in other cities, and, the Rewind feature, which lets them redo their swipes. Paying members, who see no ads, will also be able to flip through unlimited profiles. Those who stick with the basic version will not only begin seeing ads soon, but can "run out" of right-swipes, and then must wait for a 12-hour period before they "like" profiles again. The pricing for this is tiered, but in an unusual way: users under 30 years old pay $9.99 a month, but those over 30 pay $19.99 — leading to the aforementioned cries of ageism.

In some territories like Brazil and the UK, users had Tinder Plus pushed to their phones in advance of its official rollout. Carolin Weisser, a young German professional living in London, was among them. Weisser told VICE News that she didn't realize she was part of the group who had to pay until she reached her "like" limit, which, on the test version, cut her off for a 24-hour period.

When she ran out of swipes, Weisser says she didn't feel the urge to pay just to keep playing the Tinder game. While the price on the test version varied from user to user, her price through the German app store was €14.99. Even though she likes the app and has been on dates through Tinder, she found that too expensive.

"I was like, okay," she laughs. "I can be without Tinder for 24 hours."

According to industry analysis by market research group IBIS World, Barry Diller's media conglomerate IAC controls 27 percent of the $2.2 billion online dating market, owning Tinder and other dating websites OK Cupid, Match.com, and more.

IAC noted cautiously in prepared remarks to shareholders in Q4 of last year that this style of monetization was slow to build on other sites, like OK Cupid, but they've elsewhere been more openly optimistic. Last year, the company predicted $75 million in earnings for Tinder in 2015. Representatives for IAC and Tinder did not respond to repeated requests to comment from VICE News.

'When people need OK Cupid or they want OK Cupid, they use it very intensely. And that's why we can get people to pay for it.'

Misiek Piskorski is a professor of strategy and innovation at IMD Business School in Switzerland, and co-authored the Harvard Business School case studies on eHarmony, Facebook, and LinkedIn. He says that there is a divide between "friend platforms," such as Facebook, that connect you with people you already know, and "meet platforms," such as eHarmony, which connect you with people you do not.

"People are quite willing to pay money to meet strangers," he told VICE News. "It's very hard to get people to pay money to interact with their friends."

Christian Rudder, a co-founder of OK Cupid, agrees. He told VICE News that OK Cupid feels like a service, connecting users with people they might never have met without the site. His site also operates on a freemium model, offering a basic suite of services, along with ads, to its free members, and benefits like more pictures and anonymous profile browsing to its "A-List" subscribers.

"Our need might be narrower, but it's much deeper," he says. "When people need OK Cupid or they want OK Cupid, they use it very intensely. And that's why we can get people to pay for it."

But perhaps more to the point, these sites need users to pay because advertisers don't, or at least don't pay as much as one might expect.

A major focus for advertisers is context — what appears around their ad — and Piskorski says brands are skittish about being adjacent to anything that could end up on Tinder Nightmares. More broadly, however, he says the data generated on dating sites might be useful for evaluating future mates, but it isn't that interesting to advertisers.

The hard numbers on ad revenue back this up. In Morgan Stanley's bearish report on Tinder Plus, which leads with, "the swipe is hype," the analysts break this down to dollars and cents, writing that the average ad revenue per Monthly Active User (MAU) on Plenty of Fish, the largest free dating site, is $.33. For comparison: on Facebook, it's $8.72.

Even sites that began as ad-based now make most of their money off of subscriptions and other freemium purchases. Rudder estimates that advertising makes up only about 10-20 percent of OK Cupid revenue. And a representative for Grindr, the well-known location-based meet up app for gay men, told VICE News that the app makes 75 percent of its revenue through subscriptions to its premium Grindr Xtra service and slightly higher 25 percent through advertising. This higher percentage is in part a result of advertiser attraction to the app's more targeted demographic.

But again, by way of comparison: in Q4 of 2014, 93 percent of Facebook's revenue was advertising-based.

Useless data?
Given the sheer quantity of extremely personal information disclosed on these services — for example, Match Question #3,686 on OK Cupid: "Have you ever had an abortion?" — this feels somewhat counterintuitive. Shouldn't this data be more valuable?

To begin with, Rudder told VICE News that OK Cupid no longer sells public Match Questions (or, he adds, any other user data) to advertisers, though the site once did, from about 2008-2010.

"We'd experimented with bundling the public match questions as part of more typical data sales (age/gender) while we [were] figuring out our revenue model," Rudder wrote to VICE News. "We were trying everything to make money, and that was one of the things we tried."

They stopped, he says, not because users complained, but because they found better ways to make money.

The bottom line is still that the kind of information you can get from OK Cupid's Match Questions, according to Rudder, is not the sort of data that really matters to brands.

"There isn't as much of a market forthat kind of stuff… as people think that there is," Rudder says. "There's nothing that Chevrolet can do with attractiveness votes, really. They're trying to sell cars. They want to know how much money you make, how old you are, where you live, and those are the same kinds of things they've always wanted to know."

Jonathan Mayer, a graduate fellow at Stanford University, launched a 2011 investigation that discovered how OK Cupid appeared to sell many categories of information about its users to two data management platforms — companies that aggregate, consolidate, and sell user data to target online ads. The information OK Cupid "leaked" (in Mayer's terminology) included age and income, along with drug use and drinking frequency, and preferences for cats or dogs.

When asked about Mayer's study, Rudder told VICE News that, "this is public stuff anyone could glean."

"We almost never get user complaints about the things the media thinks they care about," he said.

Mayer hears a similar theme over and over, he says, from Facebook, OK Cupid, and others, on user privacy issues: "If users care so much about privacy, why do they keep acting like they don't? And why do they keep giving out all this personal information?"

The truth about privacy policies
But instead of users who don't care about privacy, Mayer sees consumers who are uninformed.

Aaron Smith, a senior researcher at the Pew Center and author of a 2013 report on online dating, has research that supports Mayer's perspective. While the online dating survey did not cover privacy specifically, Smith said people broadly misunderstand privacy policies.

"Obviously privacy policies just outline how information will be shared," he said. "They don't necessarily have anything to do with whether it's kept internal or not." Yet he points to a Pew poll that finds 52 percent of Americans believe that a website having a privacy policy, by definition, means their information will be kept confidential.

Other data privacy concerns come into play with Facebook authentication. Tinder and many of its imitators and possible successors, such as new dating app Hinge, use Facebook to populate their users profiles.

Zach Feldman, chief academic officer and co-founder of The New York Code + Design Academy, says this is good deal for both Facebook and the start-ups. For Facebook, it lets them boost their monthly active user numbers, and also keeps users "locked in" to their Facebook account, because they'll be less likely to delete it if its integrated into their other digital profiles. For the start-ups, he explains, it allows them to draw in users with an easy set up, with no long profile to type out or pictures to upload.

New York City Tinder-user Andrew McLain, who met his girlfriend through the app, likes that Tinder connects with his Facebook profile, calling it a "convenience."

"This is why they want to connect to Facebook," he says. "To make it easier."

He added that he wasn't bothered about having them connected, and said his only initial concern was that Tinder might post what he did on the app to his Facebook account.

But Mayer sees more profound privacy problems than Tinder exposing their users' "guilty pleasure," as McLain calls it, to their Facebook friends.

First, a security breach at one of these very small start-up could expose a very large cache of Facebook credentials and corresponding personal data. And second, Mayer says, these new start-ups will eventually (as Tinder did before them) look to monetize. And while subscriptions are one way of doing it, another is to "slurp up a lot of information from someone's Facebook account, repackage it and resell it.

When you grant an app or another site access to your Facebook account, you give it permission to access different parts of your profile, sometimes far beyond just your profile picture or name. Tinder, for example, "requires" access to your public profile to function, but the app also has permission to access your friend list, relationship details, status updates, likes, personal description and more.

Facebook data like this, in Piskorski's estimation, is more valuable than anything generated on dating sites, in part because it's usually more truthful.

On dating sites, he says, "there's some sort of social expectation around what these profiles will convey, which makes us very often hide who we really are."

But he says that on Facebook, not only are profiles filled out, but because they're intended for friends and not strangers you're trying to pick up, they're also more honest representations of who you really are.

On the technical side, there's no barrier that prevents companies from "slurping up" more Facebook data and there might be a strong business incentive to do so. Mayer says this is "not really a winning combo for allaying concerns." He adds that there is a "sizeable and growing market" for any accurate data about web users, even when it is bought and repackaged from another site.

It is doubtful this will allay any concerns for Tinder and IAC either. Because many of Tinder's competitors have profiles populated through Facebook pages, there's not much Tinder users would need to do to migrate over to a new service.

"You have to be careful, because there are so many substitutes," Piskorski says. "It's so easy to flip to another app."

We won't know for some time how successful Tinder Plus will be, but Grindr, often seen an analogue to Tinder, might offer an instructive comparison. Similarly to Tinder, Grindr launched as a free app in 2009, and then introduced Grindr Xtra, several months later. CEO and founder Joel Simkhai told VICE News he wanted to ensure that users remaining on the ad-supported version didn't have a "sub-par experience."

Xtra users get to see, as the name implies, extra profiles, and enjoy other perks, such as enhanced filters. But those who stay with the ad-supported version don't have a limit on the number of profiles they can see in a day or the number of chats they can initiate.

When asked to comment on the Tinder Plus rollout, Simkhai told VICE News he would give them the same advice publicly or privately.

"If you're going charge users for something," he said, "make sure it's good." 

Follow Meg Charlton on Twitter: @businessmeg

Photo via Flickr