The Strategy Puzzle of Subscription-Based Dating Sites

There is no turning back from online dating: Matchmaking and online dating has become a $2.5 billion dollar industry, and about 25% of U.S. couples now meet on the internet. While most early dating websites operated as simple platforms where users could freely browse and contact members, newer sites have made matchmaking technology an important value proposition. But are the lovelorn better served for it? In a recent study, researchers examined the fundamental conflict of interest that exists between matchmakers and their clients: Upon finding a compatible partner, users typically terminate their site subscription, hurting the firm’s revenue and cash flow. It is therefore unclear whether profit-maximizing sites would strive for the most effective matchmaking technology, or deprioritize innovation. The researchers’ analysis finds the factors that hinder matchmakers’ motivation to offer better technology, as well as the factors that incentivize innovation.

For centuries, matchmaking was mostly left in the hands of parents and older relatives. During most of the 20 th century, Americans chiefly relied on friends – and to a lesser extent family and even coworkers – to meet their significant otherputer-assisted matching started as early as 1959, but the biggest shift occurred in the mid-1990s, with the birth of the first online dating websites. Now there is no turning back: Matchmaking and online dating has become a $2.5 billion dollar industry, and about 25% of U.S. couples now meet on the internet.

While most early dating websites operated as simple platforms where users could freely browse and contact members, newer sites have made matchmaking technology an important value proposition. The site eharmony asserts using a “scientific approach to matching highly compatible singles”, based on “29 dimensions of compatibility”. OKCupid claims to http://www.besthookupwebsites.org/local-hookup/nashville “do a lot of crazy math stuff to help people connect faster.” But are the lovelorn better served for it?

The business dilemma at the heart of modern matchmaking

In a recent study, we (with co-author Kaifu Zhang from Carnegie Mellon University and Alibaba Group) examined the fundamental conflict of interest that exists between matchmakers and their clients: Upon finding a compatible partner, users typically terminate their site subscription, hurting the firm’s revenue and cash flow. It is therefore unclear whether profit-maximizing sites would strive for the most effective matchmaking technology, or deprioritize innovation.

Of course, a platform must be good enough for customers to join it in the first place. However, other researchers have suggested that the effectiveness of matchmaking algorithms sometimes fall short of the sites’ claims.

The problem isn’t limited to dating websites. A senior executive at a top job-hunting site (whose revenues similarly depend on subscription fees) told one of us: “Our biggest challenge is exactly that our technology is too good. Small employers find suitable hires too quickly, leading to a very high churn rate.” The executive explained that growth was getting costly as it required a large salesforce. The firm was therefore testing a less effective matchmaking technology, “on a small scale”.

The Strategy Puzzle of Subscription-Based Dating Sites

To be clear, we are not saying that using inferior technology on purpose is a widespread practice in the matchmaking business. Nevertheless, it is worth examining the inherent dilemma at hand, as it offers potential learnings for many other industries where firms operate as intermediaries. Beyond dating and job-hunting sites, let’s not forget business-to-business procurement sites that match customers with suppliers (e.g. whole distributors matched with suppliers in China).

Our theory can even be applied to industries beyond matchmaking platforms, where a product/service enables consumers to achieve a goal and consumers will stop using the product once they attain the goal. While analyzing whether biotech firms should invest in a cure, Goldman Sachs recently came across this issue. The analysts claimed that “[w]hile [delivering one shot cures] carries tremendous value for patients and society, it could represent a challenge for [medicine developers] looking for sustained cash flow.” The analysts’ suggestion was, as a CNBC reporter put it, that “cures could be bad for business in the long run”.