THE STRATEGY PUZZLE OF SUBSCRIPTION-BASED DATING SITES

MATCHMAKING and online dating has become a $2.5-billion industry, and about 25 percent of US couples now meet on the internet. While most early dating web sites 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?

The business dilemma at the heart of matchmaking

in a recent study, we 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.

Incentivizing firm innovation

according to our game theoretical analysis, two main factors can hinder the matchmakers’ motivation to offer a better technology. First, users have a better chance of finding a good match in a larger community. the second is, somewhat ironically, uncertainty over consumer patience. Some consumers don’t need or want better technology. and definitely won’t pay for it.

Fortunately, our model also describes a few factors that can incentivize firms to strive for better matchmaking technology. one is competition. Suf f iciently intense competition tends to reduce profit margins as it pushes down subscription fees. Better technology starts to be seen in a different light—as a potential source of competitive advantage.

another way to incentivize matchmaking firms to improve their technology would be to change the subscription-based revenue model to a commission-based model, in which matchmakers charge users based on successful matches.

however, most online dating web sites would find a commission-based system difficult to implement. in these and other cases where commissions are impractical, matchmakers could charge a sizable, upfront payment to cover a longer subscription period. Such locking-in of consumers would help alleviate a firm’s concerns about customer churn and increase its willingness to upgrade technology. Meanwhile, consumers asked to pay a high fee upfront would be more likely to choose the matchmaker with the best technology, especially if they are serious about finding the one.

hopefully, consumers able and willing to commit to matchmakers will get the matchmakers’ sincere love (and best technology) in return. the key to achieve this mutually beneficial outcome is to resolve the matchmakers’ strategy dilemma, making sure their revenue is not negatively affected by their technology innovations.