TechCrunch has a guest post from Eric Clemons, Professor of Operations and Information Management at The Wharton School. The article, Why Advertising Is Failing On The Internet, talks about how online advertising in it’s current format is doomed.
This got me thinking about the relationship of advertising to free online dating sites. I started out thinking this post would be about how the drop in ad revenue discussed in the TC post would affect online dating, but decided I’d throw out my more general observations about advertising and online dating instead.
Granted, advertising is not going to hurt online dating, but as a revenue source in it’s current format, it’s certainly not helping. Connecting brands with customers on dating sites is wide open territory at this point. No dating site has cracked the code yet, most are relying on ad serving networks to deliver targeted advertising. This is a big mistake I hope will be addressed by smaller ad networks catering to online dating sites.
Disclaimer: I often run ad-blocking software in Firefox. When it’s not on, I probably click an ad every week or so. I’m also very good at ignoring ads when I’m browsing. I think display advertising on the internet is broken and marketers for the most part are either stuck in their ways or choose to remain ignorant instead of trying to fix the problem. Paid dating sites that feature ads drive me crazy.
In order to make enough money to survive, free dating sites are currently stuck in a revenue rut. All they can do to earn enough money to keep the lights on and the servers running is plaster sites with (for the most part) un-targeted advertising.
PlentyofFish is trying an interesting experiment where members can purchase a badge that identifies them as a Serious Dater. The badge simply signifies intent and is a weak value proposition, because even an axe murderer can buy a badge. But some people will buy them.
Diversity in revenue streams is a good thing for online dating sites, but there are only so many Dr. Phil DVD’s people will buy, especially since he’s doing a good job impersonating Jerry Springer these days. Highlights in the search results seem to backfire – “If she felt the need to place a red border around her profile, what’s wrong with her?”
POF is now a hybrid free/paid. The basic site functionality is still free, but you’ll be able to buy all sorts of bling for your profile. PlentyofFish is turning into Myspace whereas OKCupid is becoming Facebook. Plenty of holes in this analogy but you get my point. I would pay POF $25/year for a custom-looking profile. I’m not saying clowns-on-acid Myspace custom, just something that isn’t quite so horrid to look at and easier to read.
Let’s think about two different types of online display advertising.
With CPM advertising, a certain number of visitors are required to visit the site and simply view ads in order for the dating site to get paid. CPM advertising is for the pro’s. If you’re not spot on with your creative, you’re throwing good money after bad.
The CPC model still requires a ton of visitors, because only an infinitesimal amount will actually click that University of Phoenix/fat burner/mortgage ad. That’s two ways ads are priced, there are others like Cost Per Action but I won’t get into those here.
Regardless of the type of ads displayed, any free dating site with fewer visitors than necessary to remain profitable through clicks or impressions will fail. Let’s say the magic number is 200k monthly uniques. If the site receives less than 200k visitors, it doesn’t make enough revenue to stay afloat.
However, it is very difficult to start a dating site with an empty database of members. Thats why White Label Dating appears to be running away with the paid dating white label market. Their value proposition to startups is that they enable you to launch your site pre-populated with members, avoiding the empty database problem.
If the future of online dating is free, why isn’t someone buying up 10-20 dating sites comprised of many demographics and starting Free White Label Dating? Build an ad-targeting system, integrate with Facebook for new members, buy a few sites and bam, there you have it. Is this a crazy idea?
What happens when ad prices bottom out or we simply start using browsers that block ads by default? Will POF and OKCupid disappear? Does this mean that there is no way a free dating site can ever launch without considerable marketing costs? (Ignoring Facebook for now, there are still costs associated with the development and ongoing maintenance of FB apps).
I talk to lots of people considering starting free dating sites. I tell them to go talk someone into giving them $250,00 for early-stage marketing, then think about starting the site. That’s what it costs to start a successful free dating site. At least. Anything less and you’re going to run out of money before you hit the magic number of members required to run a self-sustaining free dating site.
I’m sure people will disagree with my numbers, we have to start with some baseline assumptions, please feel free to correct me in the comments.
The fact is, no other sector online has the failure rate of online dating. But dead dating sites are like zombies, they limp along in the night on $20/month servers, never quite expiring, becoming more of a hindrance than a help to singles.
People think you can throw up a site and the money will start pouring in. It’s not even that way with White Label Dating. You only get paid for the members you convince to sign up to your site. Guess what, that costs money ($2-$10k month at least to really get going) and now you don’t run a dating site, you’re essentially an affiliate marketer. When most people hear this they usually say they had no idea that’s how it works.
Do you know which dating site could turn online advertising on it’s head? Friendfinder network. Problem is, they are so clenched about the IPO that’s not happening anytime soon that they are unable to see what an amazing opportunity lies at their feet. All the great ideas end up in pr0n/adult first, as usual. I’m not going to explain it here, the idea is just so darn good I’m going to let it percolate for a while.
What happens next for free online dating sites? Giant expanding ads for Viagra and SinglesNet? Or perhaps the current circa-1999 web-ring style of ads networks will continue, where every ad on a dating site is for another dating site? As a single person, I don’t like that model much. It may be good for business but what kind of message are you sending to your members when all you want them to do is leave your site for somewhere else because you’ll make more money off of them that way?
Hopefully this dislodged some thoughts that we can take up in the comments. Off to get a haircut.
