The World's Largest Dating Company Is Going Public. What Do We Actually Know About the Dating Business?

Bored people talk about "leftover women" every day, but in China and the US alike, it is mostly men who pay

The world's largest dating company is about to go public.

In the middle of this month, Match Group was spun off from IAC and filed for an IPO. Match Group is the largest online dating company in the US. It owns Tinder, the "looks-first" social app; Match.com, the veteran dating site; OKCupid, America's largest matchmaking site; and more. These products run in 38 languages, cover more than 190 countries, hold 22% of the US market and bring in $1 billion a year.

Just as Match Group opens its books and publishes its dating data, two Chinese dating companies listed in the US, Momo and Jiayuan, have announced plans to delist from Nasdaq and relist on China's A-share market. They haven't left yet and are still reporting their finances, which gives us a chance to see what the dating business really looks like in China and in the US.

How many people actually date online?

Surveys show that 38% of single American adults already look for dates online, and in China the figure has reached 10%. Helping people find dates has long been seen as a genuine, essential need for internet products. It has never gone out of fashion.

According to Match Group's prospectus, its products have 59 million active users, 4.7 million of whom pay. In China, Momo alone has 78.4 million monthly active users, and Jiayuan has 5.5 million active users.

Meeting your other half online is now commonplace. It has lost the magic and romance it had in the 1990s, and it is no longer as wildly unreliable as it was in the QQ era a decade ago.

How did online dating get from the marriage bureau to where it is today?

Before the internet became a basic part of life, this business belonged to brick-and-mortar marriage bureaus and to freelance matchmakers who first had to get on good terms with your grandmother or your aunt.

In the PC era, finding a partner online simply meant moving the marriage bureau onto the web. From Match.com, which took off in the US in the 1990s, to Jiayuan and Baihe in China, these sites all collected piles of personal details from people looking for dates, then paired them up by hand or by computer algorithm. The model was no different from a traditional marriage bureau.

Once smartphones spread, people could start a conversation anywhere, anytime. With built-in GPS, it was easy to limit the search for an attractive partner to people close by. Features such as WeChat's "People Nearby" became standard in every kind of social app.

That is how Momo took off in 2011. It let users find strangers nearby by location, which earned it the nickname "hookup app." Momo's executives later spent years trying to shake off that reputation, but the label once brought Momo a flood of users. Our own analysis of data from IT Juzi shows that social apps saw a growth spike after Momo launched in 2011.

The same logic explains why the dating app Tinder became a hit: it cut the effort of finding a date to almost nothing. Tinder shows you people nearby; you swipe right on the ones you like and left on the ones you don't, and when two users like each other they can message privately and take it from there. You don't have to fill in a detailed profile. You just log in on your phone with your Facebook account.

Tinder also turned dating into a game. If you want someone's attention, you don't have to wait passively for them to "like" you; you can tap "super like" to tell them directly that you're interested. But both likes and super likes are rationed each day. Once you run out, you have to wait out a "cooldown," just as in a video game. It's good fun.

According to figures Match Group released in 2014, Tinder already had 50 million active users. They were remarkably engaged, opening the app 11 times a day on average. Each session lasted 8.5 minutes on average for women and 7.2 minutes for men.

"Traditional dating sites all believe that you have to fill in your profile properly to get the perfect match. They take too much time," said Marie Cosnard, head of public relations at Happn, another dating app. "Tinder was a revolution. It showed us that quick swiping on a screen can work too."

A paper by Eli J. Finkel of Northwestern University argues: "Online dating creates opportunities for some people that are hard to come by through other channels. It also makes a new kind of romanticism possible."

How much can a dating business make from each user?

According to Match Group's prospectus, it has 59 million monthly active users, 4.7 million of whom pay.

In the first half of 2015, Match Group's revenue reached $480 million. That means each user contributed $8.13 (about 51.2 yuan) on average to Match Group over those six months.

Users spend far less on Momo: just $0.73 each on average in the first half (about 4.5 yuan). The app, built around meeting strangers, posted net revenue of $57.1 million in the first half, but it also has more than 78 million active users.

It is common knowledge that Chinese internet users' money is harder to earn than Americans'. Matchmaking is the exception.

Jiayuan's first- and second-quarter earnings reports show that each user spent $10.6 on the site on average in the first half (about 66.8 yuan).

Dating apps have tried every way to make money, and membership fees still earn the most

Match Group has spent many years working out how to make money from online matchmaking. Match.com, which it bought in 1999, was founded in 1995, when the internet industry was still in its infancy.

As one of the pioneers of online dating, Match.com relied on a "contact fee" model it invented. When users found someone they liked, they had to pay the site to view that person's full profile and get in touch. Users who wanted to contact more people would buy a monthly membership.

Since Match.com, Chinese sites such as Zhenai and Jiayuan have charged membership fees the same way. Baihe only started dropping this model in May this year. Their real source of profit is information asymmetry, which makes them no different from a traditional broker.

Tinder also makes money from a monthly membership fee of $9.90, but it works differently from Match.com's. The service, called Tinder Plus, is really an add-on.

First, Tinder Plus users no longer see ads. Second, they can change their minds: if they regret a decision, they can bring back the last person they swiped away. Free users can't. Third, Tinder Plus finally lifts the limit on location, letting users search for matches anywhere in the world. Finally, users get more likes and super likes to send.

Old-fashioned as it is, the monthly membership remains dating apps' main source of income. Tinder Plus already accounts for 89% of Tinder's revenue, which shows how popular it is. Likewise, membership subscriptions made up nearly 50% of Momo's revenue in the first half of this year, its largest single source.

But these dating products are still looking for new ways to make money. Since the start of this year, for example, Tinder has been experimenting with native advertising. The photo of a handsome man or a beautiful woman you come across while swiping may simply be an ad for some brand.

Beyond Tinder, on Valentine's Day this year Match teamed up with Starbucks to encourage couples on the verge of dating to share lattes and scones; Grindr, a social app for gay men, uses a similar advertising model.

This can disappoint users. When you tap on someone you like and immediately realize you'll never get a date with them, it still stings.

In China, Momo is also trying out new businesses. Of its net revenue, 48.2% comes from membership subscriptions and 25% already from steering users to mobile games; marketing services contribute another 21.8%, and add-ons such as sticker packs 4.9%.

Jiayuan, for its part, is taking its matchmaking business offline. In the second quarter, its "one-on-one matchmaker service" made up 35% of revenue. But online services such as contact fees and virtual gifts remain its main source of income, at 63% of net revenue.

The barrier to entering the dating business was low, and it still is

Although Match Group has taken 22% of the US market, competitors large and small are still crowding into the field in Europe and the US. Its own prospectus admits that the industry's low barrier to entry is one of the risks it faces.

Just how low that barrier is can be seen in Plenty Of Fish, the legendary site Match Group bought this year for $575 million. Founded in 2003, it did not hire its first three employees until 2009.

Its founder, Markus Frind, had invested very little money, had no clear plan and didn't even understand the industry. Yet its income grew from $5 a month at the start to $3.5 million by the end of 2006, all of it from Google AdSense ads: whenever users clicked on an ad on his site, Frind got a cut.

By 2009, with Frind working fewer than 20 hours a week, Plenty Of Fish was the fourth-largest dating site in the US and the largest in Canada. Digg, the social news site, had only a sixth of its traffic at the time but 80 employees.

Building a Plenty Of Fish today may be even easier. Social networks such as Facebook and WeChat are everywhere, and any website can let users log in with them; open credit-scoring systems such as Alipay's Sesame Credit are fairly mature too. Baihe, for one, uses Sesame Credit to verify its users.

Match Group may agree that building a similar platform could be easy, but attracting users and earning enough revenue to keep going is probably not. After all, even Plenty Of Fish ended up being bought.

Online daters are young

Social prejudice holds that the older you get, the more urgently you need to find a partner. In fact, young people are the ones in a hurry to date, date, date (and who says dating has to mean finding a partner for life?).

Match Group's prospectus says users under 35 made up just 36% of its users in 2011; by June this year, their share had reached 62%.

Jiayuan's figures are even more striking. In 2011, its CEO Gong Haiyan said that 80% of its users were between 18 and 30.

Now that a date can be set up from a phone and no longer has to lead to marriage, people looking to marry are unlikely to remain these apps' main users.

As many as 42% of users aren't even single

Tinder and its imitators make chance encounters possible anytime, anywhere, but what they bring is not always romance. When a single swipe can start a relationship, dating becomes less serious.

The first sign is that many users aren't really looking for a partner. They are just there for fun. According to a GlobalWebIndex survey, 42% of Tinder users are not single.

One of them explained himself this way: "Tinder is more like a social game. I'm only on it to help my friends and other people hook up." (Users with mutual friends on Facebook are more likely to see each other.) Others claim they're only there to "peek" at other people's photos, a truly convincing excuse.

But matching on looks is just too easy, and it makes people more casual. "Once you start dating online through these apps, you naturally send the underlying signal that you're 'just looking for fun,'" said Courtney, a regular Tinder user.

A 2014 University of Michigan study found that 32% of couples who met online broke up, compared with only 23% of those who met offline.

Ads fret about "leftover women," but in China and the US alike, online dating makes its money from men

Remember Baihe's heavily promoted "dying grandmother" ad? Its slogan was "Because love doesn't wait," but its message was this: women, if you don't hurry up, go on blind dates and find someone, your family will die with regret.

It isn't only matchmaking sites that push the idea of "leftover women." Chinese pop culture is full of romance films and TV dramas built around them. But are there really that many "leftover women"?

In fact, whether it's membership fees or virtual gifts on (heterosexual) dating sites, men pay more. And this isn't just true in Europe and the US. According to Baihe's 2014 Survey of Marriage and Dating in China, men spend 10.3% more than women on matchmaking. On Ashley Madison, the American site for extramarital affairs, more than 90% of users are men. It's obvious who pays more.

According to figures released by the National Health and Family Planning Commission in 2014, China's sex ratio stands at 115.88 men for every 100 women. Southern Metropolis Daily concluded at the time that this means there are already 30 million "leftover men."

So why doesn't Baihe make an ad from a man's point of view? Perhaps because it already has enough men. What it needs is women.

In China, online dating mostly isn't under real names

Tinder can rely entirely on Facebook login and skip the profile form for a simple reason: Facebook already has 1.5 billion users under their real names and hundreds of millions of real social connections. Logging in with a Facebook account also signals that users are willing to make friends on Tinder under their real identities.

But China has no real-name social network as big as Facebook.

Neither Tantan, a straight copy of Tinder, nor Momo, which went public on the strength of "making friends with strangers," has built anything like a complete identity verification system. Even long-established sites such as Jiayuan and Baihe, which feel very much like "online marriage bureaus," only introduced identity checks around 2012, which means uploading a photo of your ID card. Nor are those photos safe from misuse by the sites themselves.

The person chatting with you on a dating site may not be real

In July this year, Ashley Madison, the site for extramarital affairs, was hacked, and its users' data leaked.

After analyzing the data, the tech site Gizmodo found that only 12,108 real women could be confirmed as regular users of the site, just 0.032% of its 37 million registered accounts.

Well, even fewer of them had used the chat function. Only 2,409 women on Ashley Madison had ever used chat, against 11 million men, 3,200 times as many. This tantalizing affair site seems to be, in essence, a "gay dating site," and its male users have spent their money on their own fantasies.

There were few women to begin with, and those few include so-called "entertainment accounts" that Ashley Madison created itself: fake profiles run by the company that emailed and chatted with users to lure them into paying for features.

Even accounts belonging to people who really want a partner may not be run by those people. Besides parents and relatives worried about their unmarried adult children, who may step in on their behalf, third-party teams now offer dating-by-proxy services, such as Swipemenot, which focuses on Tinder. The site says its selling point is that it understands dating platforms' algorithms better and can improve both the quality and the success rate of matches.

Yes: who knows whether the one swiping on Tinder right now is a dog?

Dating is about looks, more than you might think

When Match Group bought the American matchmaking site OKCupid in 2011, it entered the era of algorithms pairing men and women.

After signing up on the site, users have to answer a set of questions, mostly about politics, religion and family. The algorithm then matches them with partners based on the answers, which makes finding a suitable partner far more efficient.

But according to an OKCupid experiment, the algorithm doesn't actually do much. The site once told users that people who were only a 30% match were a 90% match. Satisfaction turned out to be no different: users "believed" they had found the right person, and so the match really did work.

A good selfie as your profile photo may matter far more for landing a date. In 2013, OKCupid ran another experiment. It declared January 15 "Love Is Blind Day" and removed all users' photos, profile pictures included, for nearly seven hours. Without photos, people had deeper conversations, but traffic to the site plunged.

And when the experiment ended and everyone could see each other's profile photos again, the 2,200 new relationships formed during those hours quietly ended too.

OKCupid is still a product of the desktop internet. On Tinder, a mobile app, the profile photo has become almost the most important thing you know about the other person. Beyond it, you see only a name and an age. Using the app, after all, is nothing more than swiping from one face to the next.

A cruel conclusion: offline, someone may stay polite even if you aren't good-looking; online, if your profile photo isn't attractive, the other person may simply log off.

The ultimate rule of online dating: if you want a good date, start with a good photo.

Illustrations: Zhong Shuting