INDEPENDENT TECHNOLOGY RESEARCH SECTOR INITIATION NOVEMBER 2012 ONLINE DATING A LABOUR OF LOVE – ONLINE DATING IN THE AGE OF MOBILE AND SOCIAL MEDIA Industry Being Re-Energised by New Entrants As one of the long-standing Internet verticals, online dating is currently being re-energised by a flurry of new entrants looking to capitalise on (i) the acceptance of online dating, (ii) social media’s ability to expand the market beyond traditional dating services, and (iii) mobile’s ascendance to becoming a key pathway to consumer services. Through the proliferation of social media and the ubiquity of mobile Internet the online dating industry is adapting to cater to changing consumer needs. Some well-established players are pursuing innovation and growth through acquisitions and a fresh wave of start-ups are looking to capitalise on a rapidly evolving and potentially much larger market. Three is no Longer Company… With the advent of social media, a new online dating category called “social discovery” is starting to emerge looking to leverage social graphs, integrate friend’s recommendations and setting up casual events with people that share similar interests. With the boundaries between online dating in the traditional sense and social networks quickly becoming blurred, we think the online dating sector is set for strong growth, driven by the increasingly social dimension of online dating and the ease and convenience of mobile dating. Is Mobile The Killer App? Mobile is shaping the way singles interact with online dating services as the mobile phone is ideally suited to leverage the pervasive nature of an individual’s digital life. Mobile adoption has been rapid in online dating, with 30% of all eHarmony traffic now being originated from the mobile, 40% of Match.com log-ins stemming from the mobile, and 68% of all Badoo log-ins coming via the mobile. CLAUDIO ALVAREZ [email protected] In the US, the nascent mobile dating market is estimated to be $200m+ in London: +44 207 101 7571 2012 (30% YoY growth) and in Germany it is forecast to reach $40m+ by 2012, with mobile dating penetration across Western Europe estimated to be MANISH MADHVANI around 10%. [email protected] London: +44 207 101 7560 ALESSANDRO CASARTELLI [email protected] London: +44 207 101 7594 Important disclosures appear at the back of this report GP Bullhound LLP is authorised and regulated by the Financial Services Authority in the United Kingdom GP BULLHOUND – ONLINE DATING – A LABOUR OF LOVE TABLE OF CONTENTS The Evolution of Online Dating ................................................................................ 2 Introduction ........................................................................................................ 2 Dating Before the Internet ................................................................................. 2 The Birth of Online Dating – A Serious Affair .................................................... 3 Niche Verticals – An Attractive Market .............................................................. 4 Europe Joins the Party ...................................................................................... 5 Monetising Online Dating .................................................................................. 6 White Labelling .................................................................................................. 7 Market Size and Growth ............................................................................................ 8 The Rise of Social Discovery.................................................................................... 9 Social Dating: A Natural Evolution from Social Networks and Online Dating . 10 Social Dating 2.0: A New Crop of Players ....................................................... 13 Challenges Ahead for Social Romance .......................................................... 14 Dating has Become a Key Category in Mobile ..................................................... 16 Mobile Dating Usage Rising Sharply ............................................................... 16 Incumbents and New Players are Pursuing the Mobile Dating Opportunity ... 18 Mobile Dating: The Challenges ....................................................................... 20 Selected Company Profiles .................................................................................... 21 Selected M&A Transactions ................................................................................... 26 Selected Private Placements and IPOs ................................................................. 27 1 GP Bullhound LLP GP BULLHOUND – ONLINE DATING – A LABOUR OF LOVE The Evolution of Online Dating Introduction Services aimed at connecting individuals and enabling them to find partners and start relationships have existed for as long as living memory. The oldest form – introduction by relatives – has been the preferred method for centuries and continues to be available today. Yet in more recent years a series of dramatic changes have fundamentally altered how singles enter the dating scene and find partners. In the 1900s rising economic prosperity, urbanisation and increased life expectancy, coupled with the widespread availability of contraception and the social and sexual liberation of the 60s, brought about a seismic shift in attitudes towards love, sex and marriage, and consequently dating. In the last few decades however it is technology – in particular the Internet – which has been the agent of change. Dating Before the Internet Before the Internet, dating services were obtained in person through dedicated intermediaries – matchmakers and introduction agencies. These intermediaries controlled and charged for access to pools of prospective partners, the size of which were limited by the depth of the intermediaries’ respective networks. The matchmaking process was fairly cumbersome and time consuming, as new clients and prospective partners all had to be assessed in detail to provide the highest chance of success. It was also expensive. The other route to romance for lonely hearts was to list adverts in the personals sections, on radio shows, or on TV through dedicated dating channels. Despite being cheaper and quicker than the matchmaking route, this method was also less than satisfactory – success was dependent on Mr. or Mrs. Right happening to read the relevant paper or tune in on the day of the advert, and few people were prepared to pay for repeat listings. Moreover, both of these methods suffered from a general lack of social acceptance – for most people, paying to find love was seen as a last resort, not a first port of call. As a result, these conventional dating channels remained a niche and fractured market, with a blend of small local agencies and media groups functioning at different levels of the market and operating under different revenue models. Yet with the arrival of the Internet and the digital age, all this would change. E X H I B I T 1: G L O B A L G R O W T H I N S I N G L E S P OPULATION AND O N L I N E S INGLES Global Singles (m) Global Online Singles (m) % of Americans who met their partners online 331 23.2% 99 19.3% 69 10.9% 277 3.8% 2.1% 0.02% 0.06% 2011A 2020E 2011A 2020E prior to 79-88 89-93 94-98 99-03 04-06 07-09 '78 Source: Forrester Research, Euromonitor International, Stanford University and City College of New York, GP Bullhound 2 GP Bullhound LLP GP BULLHOUND – ONLINE DATING – A LABOUR OF LOVE Some of the key drivers that have led to the uptake of online dating are: a rapid rise in the global online population, a rapid rise in number of single-person households, improved user functionality and the fading away of the stigma attached to online dating. The Birth of Online Dating – A Serious Affair The online dating industry was established in 1995 when Match.com and AmericanSingles.com were launched in the US. Match.com took a more traditional approach to dating online through matchmaking (i.e. pairing people up dependent upon their personal profile and goals) and AmericanSingles.com took a much more casual approach by allowing members to search its database by gender, age and location. In 1994, when only about 5% of the US population had Internet access and the Internet was still in its early stages, an entrepreneur named Gary Kremen purchased – from the US government – the Match.com domain name for $2,500. In 1995, he founded Match.com as a way to inject efficiency into the traditional matchmaking model. Before Match.com Gary started a personals classified business that primarily used premium phone numbers to engage clients. However, he found the phone service inefficient, and thought if he could create an online database of personal advertisements it would allow people to find potential partners themselves more quickly, effectively and, most importantly, anonymously. Given the early stigma around online dating, and the type of users that Match.com was trying to attract, it was paramount that the service was able to guarantee anonymity but still allow users the ability to have meaningful interactions. Match.com quickly grew to be one of the leading players in the online dating space and was sold to IAC in 1999 for $50m. Today, Match.com generates revenues of over $500m, has over 2.7m subscribers and over 6m unique monthly visitors. E X H I B I T 2: O N L I N E D A T I N G U N I V E R S E (REPRESENTATIVE ) High Matchmaking Traditional Online Dating Casual Pricing Niche Dating Low Broad Target