Why should Facebook enter the dating market and how would you execute it?
Clarification: Dating apps are very popular these days. There are focused on a specific type of networking / connecting experience with people wanting to establish relationships. While Facebook is meant to connect people, people on Facebook are not expecting to be contacted with dating requests. Such requests need proper context and show of explicit interest from both sides to make sense.
Strategic Question: Given that dating apps are attracting millions of users who are also on Facebook, and a lot of the functionality needed for dating exists on Facebook, Facebook is in a good spot to build should it want to.
First, why should Facebook enter the dating app market? The possible reasons could be any of the following:
- Facebook sees this audience as a sizeable audience, wants to retain these users in Facebook.
- Facebook is not able to reach this audience today, there is poor engagement from these user base and demographics heavily into dating apps. This could be a way of offering them a reason to stay more engaged in Facebook overall.
- Facebook sees this audience as highly engaged, resulting in substantial advertising opportunity if a new experience is offered to them. The new experience might be more amenable to either new types of advertising that could be mis-aligned to the current Facebook experiences
- Facebook sees this as opportunity to create a completely new revenue stream to leverage its people graph to offer new types of products and monetize them differently from advertising such as monthly subscriptions. Dating could be one, recruiting could be another, etc.
- Facebook sees this as a threat to its user base as it is one of the core social activities of an important segment of users, and not being able to play a part in that, reduces the importance / value of Facebook in their lives.
Let us look at each of the reasons a bit closer:
Impact on revenue: assuming that Facebook can create a compelling product which captures 50% market share in 5 years time, we can evaluate what that might mean in terms of revenue, Let us assess opportunity in US. Let us assume that the majority of people between 18-30 are actively involved in figuring out their life partner and thus are potential customers. Estimating the size of this segment, that is roughly 15%-20% of the US population based on my current knowledge. That is roughly 45million users in US. Now this pales in volume to overall user base but from value perspective, the advertising revenue is disproportionately higher based on online habits and advertising rates in USA. If this segment spends the most time on dating apps, time on Facebook reduces and this might be a good reason for Facebook to recapture the attention share and thus revenue share.
Let us project the potential revenue if we have 50 million users using a dating app. Good dating apps drive very high engagement with multiple sessions every day. Assuming that out of 50 million users, 50% are roughly looking to be in a relationship, then we have 25 millon users who might potentially login multiple times every day. Let us assume they login and spend 20 minutes every session. That is roughly comparable to Facebook time spent today. That might mean 100 pages in a mobile experience. Let us assume that 25% of these pages are amenable to a mobile ad. Ad impressions = 25m x 25 pages = 625m ad impressions per day or 18B impressions a day. For simplicity, let us find lower bound - 50 cents per 1000 impressions or 0.5x18B / 1000 = 9m a day, 270m a month or 2.5B dollar a year.
The negative factors are: 1.Popularity of existing alternatives such as Tinder etc. 2. Potential dampening effect on Facebook developers since Facebook is entering app space 3. Potential brand impact on Facebook so that it is not seen same as adult dating site.
The good news is that Facebook is well positioned to cross the user profile moat by building a bridge to a dating app experience connected to its Facebook experience.
Second, the dating app options are mostly out of Facebook family of apps. Third, if properly branded and kept at arms length, the dating experience would be seen as independant entity.
Finally, finding the right match is a lot about knowing the person, knowing their friends, finding match in interests and creating a sense of safety and confidence. Facebook is in a unique place to provide that holistic view for people to make the right choices.
Considering the above synergies and that this by itself is a significant revenue contribution and significant share of screen time in a sizable audience, my recommendation would be to enter the dating app market.
How to execute market entry:
Facebook could start with a simple experiment to
- let people say privately they are open to being contacted by people
- help people find other people based on interests and hobbies
- by default, limit the people who can participate in a geographical area
Once there is mutual consent, they can carry on conversations with regular channels such as Messenger.
The goal of these experiment would be to evaluate potential market size, revenue potential and willingness to use Facebook as a dating experience. If the experiment succeeds in a few different types of locations, this could be the foundation of a more purpose built experience perhaps a standalone app experience.