Online dating is still so popular that there are countless new startups in the space. Often, young founders will start businesses in the online dating niche because of their own experiences with more widely known apps like Bumble, OkCupid and Match.com.
While there is plenty of room for growth in the market, I also know that some challenges need to be addressed. Five problems, in particular, are not necessarily apparent to new founders, but they can be the difference between success and failure in a competitive industry.
Here are the five non-obvious issues I have experienced while reviewing dating companies as an investor.
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Dating apps are transactional by nature.
The primary goal of an online dating app or website is to help users find a perfect match. Of course, this means that the best apps have the highest churn rates because they've fulfilled their purpose, and people no longer need their services.
So, here's the paradox: The better the company is at its mission, the faster its users stop delivering value.
On the surface, this can suck away a founder's motivation to do well at their job of matchmaking. After all, the purpose of any business is to grow and be profitable.
Founders should consider other avenues for retention when developing a business plan. For example, an option to search for platonic matches or non-date hangouts would give users a reason to keep returning.
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Lack of interesting content.
If you've ever used a dating app, you know how quickly it can become boring, especially if you don't have any new matches or messages. Many founders don't think about a common problem: chats often become meaningless, and there's no other content to view on the platform.
To combat this, many new startups are incorporating alternative content such as celebrity webinars, AR features, AI dating assistants, games and even educational videos.
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Most dating apps have limited scalability due to geography.
Dating apps typically base matches on a user's GPS location. Since most people hope to find a match close by, this makes sense. Companies like Tinder, Badoo and Bumble all operate this way.
However, from a business standpoint, this model is nearly impossible to scale in a meaningful way. Companies have to launch city by city, which requires a substantial amount of time, effort and capital. Such a slow and uncertain process doesn't look good to investors.
An alternate approach would be to consider ideas such as international dating. People are increasingly interested in virtual hangouts. This means there's potential for an app that connects people internationally with no immediate intention of meeting in person. This could also help people with social anxiety and similar struggles ease their way into making meaningful connections.
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High rates of scammers across the industry.
An unfortunate problem that the online dating industry faces is the issue of scammers and spammers. Recent reports say anywhere from 10-20 percent of online dating profiles are fake. In addition, online daters reported losing $547 million in romance scams in 2021 alone.
These scammers not only harm the overall user experience but substantially worsen the metrics for investors. Some of the less trustworthy platforms will leave these fake profiles in order to bolster their numbers and give the appearance of more user activity. However, the best companies often mitigate the issue by hiring moderation teams specifically to monitor and delete these profiles.
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Slow market growth rates and low ARPU.
Right now, the anticipated annual market growth rate is hovering around six percent. Expert projections point to a user penetration of 6.4 percent by 2026, with a 5.4 percent rate by the end of 2022.
These numbers work out to give an estimated average revenue per user (ARPU) of just under $9. From an investment standpoint, these numbers are painfully low. Such low figures are the main reason why there are so few VC investments in the online dating industry.
However, I think that one way, in particular, new founders could address this is by expanding the scope of the product. Creating something new that intersects dating and social discovery or dating and gaming would substantially increase these numbers. It would also address other problems of churn rates and lack of content.
Online Dating Founders Must Think Outside the Box to Succeed
The problems I've outlined are ones that many new founders don't consider until it's too late, which is another reason why they often struggle to obtain VC funding for their startups.
The truth is that there is plenty of room for growth and expansion in the online dating market. However, founders must be agile, creative, and mindful of the challenges they will face in order to succeed in the long term.