Background

I follow the online dating industry for several years now,  and gained some insights on the challenges of building a consumer app. One particular aspect of these challenges is directly linked up to fundraising. It is already hard to build a consumer (mobile) app, harder to bootstrap to scale and probably hardest is to retain and to monetize users. Thus, it can be really (really) hard to successfully launch and grow a dating app company.

While we can still see some traction regarding deals across the globe, those are mostly acquisitions by IAC Corp (Match Group, Tinder, OkCupid among others) and rarely, companies going public (Match Group, Momo, Jiayuan.com, among the few…). Whether in the US or in Southeast Asia, there are still some investors willing to bet on online dating industry.

Nonetheless, I came to believe that while the industry is fun and exciting, there is not much room for ground-breaking innovation (perhaps, Machine Learning and Virtual Reality could change the game of love?!) and the total addressable market, in Southeast Asia or globally, is hard to capture as a whole.

Let’s take a look at the funding/ M&A, at the total addressable market, the competitive landscape and new market entries for a dating app. Perhaps this should provide some insights on the industry…perhaps.

Funding/M&A

Southeast Asia vs Silicon Valley

From CB Insights,

Dating App Startups Funding Deals by CB Insights
CB Insights Dating Startup Funding 2014-2015

Selected deals in Southeast Asia between 2014-2016 excluding time of raising for startups which got acquired,

Dating App Deals in SEA
Dating Startup Deals in SEA

Exits are rare. None of the above exits in Southeast Asia were substantial. Globally, most exits were through acquisitions b IAC Corp/Match Group. And the overall ecosystem is less likely to be gaining attention from investors with the exception of a few outliers.

Paktor and Lunch Actually are two serious contenders in Singapore and Southeast Asia. Paktor, which has been featured among the 12 biggest rounds in the region in 2016, started out as a mobile app platform and now offers both web and offline experience. Lunch Actually is the opposite as it started out with an offline dating agency and added new products to its portfolio ranging from mobile to web platforms.

Disclaimer: I have worked with DateTix Group in the past (but not anymore at the time of this post)

Remark: Yes, there are deals and M&A going on. It is not impossible to see such things happening. But nothing very profitable.

Total Addressable Market  for Dating Apps (TAM)

In the US alone, the industry is estimated to be bringing in over $2 billion in revenue each year, with the market expanding at around 5% between 2010 and 2015. Outside of US, China is leading the pack and is expected $1.6 billion by the end of 2016 [Nasdaq]. People of all age groups are into the game of love but this does not mean the TAM is expanding. And assuming the global TAM is approximately $5 billion, is it really worth pouring funds into it?

It would be rare for the a dating app to expand its TAM but not impossible. While I am not currently aware of many examples, I know that Momo (China) has added feature enabling live video to its platform.

Perhaps the intersection of dating and lifestyle services (e.g. events, parties, dance classes, movies, dining among others) could help to expand the revenue potential of well established dating platforms. The question would be how to get there? What would represent a critical mass before an attempt to expand the TAM?

Remark: I would argue against it since it is well-known that dating (including online dating) is affected by both shelf-life and high embedded churn rate.

Quickly about shelf-life and high embedded churn rate:

Shelf-Life: Dating apps are inherently aimed at specific group of people. Each of these groups have their own limitations, thus reducing the TAM as well as self-limiting the app’s chances of growth.

High embedded churn rate: Subscription model is one revenue strategy for a dating app. However if the dating app is really effective, the users (usually, by pair) will start churning out.

Couple-Dating

Dating App Competitive Landscape (CL)

I have no doubt that, on a global scale, there could be a new dating app popping up each month, and that a lot of people are coming up with dating app ideas every day although few actually will go to market with a prototype.

In Singapore alone, the landscape is over-crowded. Have a look at those websites (Link, Link, Link) for a list of usual suspects . The 2 local dating apps are Paktor and Lunchclick who have risen to a certain level of popularity in the city state.

The number of eligible Singles in Singapore is around 1.1 million. The cost, the churn and the competition are daunting. Nonetheless, there are many aspiring entrepreneurs who have been trying to launch something…but is it really worth it?

Remark: It is truly expensive to acquire users through both organic (e.g. Word of Mouth) and non-organic channels (e.g. Facebook Ads) to solve the ‘chicken-and-egg problem’ of a 2-sided marketplace.

TAM aside, what about new market entries?

Let’s take US as a region and Southeast Asia (SEA) as another region.

In the US, for a dating app to scale beyond, say New York City, it will have to spend considerable amount of money to enter a new city, say San Francisco. This is because a dating app is a typical ‘chicken-and-egg’ as a 2-sided marketplace (single male and single female).

In SEA, starting a dating app in Singapore is quite simple albeit expensive. Singapore is a developed economy with ease of transport, safety and small enough for news to spread like wildfire through social media. But to reach out to all the smartphone users in Singapore would be a herculean task (some exaggeration here) require a strong branding and a lot of patience and money.

Think for an instance for Kuala Lumpur or Jakarta which are both wildly different from Singapore. How would they fare in comparison?

A dating platform is a local marketplace for singles to virtually meet. The better dating app makes it easier by being localised, to facilitate the transition from online to offline. Think Tinder.

Similarly, being localised require new market entry strategies from one city to another or from one country to another. The list is long but it starts with cultural differences, language and local infrastructure available among others.

Doing things that don’t scale such as events are actually reasonable. I have seen many (un)professionals hosting events with a dating connotation. These events remain social ones with or without a profit intention. However, they are still not able to scale, and wouldn’t guarantee a dating app’s user base to grow , or being able to monetize.

Remarks: It is hard for a dating app to enter new markets due to various barriers of entry such as culture, infrastructure among others.  It can be highly expensive and require significant time and effort to set foot into a new market. Of course, there are exceptions but someone’s luck (and product quality) will not be easily replicated.

loneliness

The future of Online Dating?

It is perhaps one of these industries where there will be a winner-takes-all situation. IAC Corp is winning big right now since it owns the majority of the dating platforms. There are serious yet few contestants like Happn, Coffee Meets Bagels, Paktor which are still active and going strong. Few dating apps are able to grow and retain users on a consistent basis year after year, some are able to raise funding and some are able to get off the ground before crashing…it is hard to successfully launch and grow a dating app.

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