The Five-Year Itch

Not so long ago, online dating seemed to offer lonely-hearts new hope that Mr. or Ms. Right was within point-and-click range. Barbara Whitehead, codirector of Rutgers University's National Marriage Project, giddily claimed to the Houston Chronicle in March 2004 that online dating--along with the introduction of the automobile and the birth-control pill--was the third most important technological revolution in the last 100 years in terms of how people meet and marry. But the promises of matches (and businesses) made in online heaven seem to be ringing a bit hollow these days. Mark Brooks, editor of consumer watchdog Online Personals Watch, says the industry stands at a crossroads. "I keep hearing that the industry is slumping," Brooks says. "No, it isn't, but we have got to get our act together."

Online dating in the United States has already reached what Jupiter Research analyst Nate Elliott calls "a point of critical mass" only five years after it first began taking off. Last year the number of internet surfers who posted online personals fell "marginally," according to Jupiter, and revenue growth is expected to drop to just 6 percent this year, down from 77 percent at the peak in 2003. The total U.S. market is now worth $521 million, small change for an industry that was expected to revolutionize a supposedly priceless commodity: love. (In comparison, online gambling sites took in an estimated $10 billion in worldwide revenue last year. And porn sites took in $2 billion in the United States.) Though the European market is still growing in high double-digit rates, it is several years behind the United States, and Jupiter expects it, too, to follow a short arc to a low plateau. "There is a natural limit to the number of people who want to participate in this industry and they are getting to that number," says Elliott.

One reason for the slowdown is that the curiosity factor has worn off. When the online scene was new, millions of consumers hit on the sites just to see what was going on. But just like trendy singles bars, many customers get bored after a short honeymoon period and move on to the next thing, including free sites like craigslist.org, which now offers dating alongside classified car and real-estate ads. Big sites like eHarmony and Match.com still attract millions of browsers, but fewer and fewer of them sign on as paying customers. That suggests to many analysts that the problem is price, which can now run up to $50 a month for popular sites.

The industry shows other premature signs of maturation and fatigue. Heather Hopkins, director of research for Hitwise UK, a web research firm, says the sites are now focused more on getting current visitors to sign on as paying customers, not attracting new visitors. Dave Tansley, an analyst with Deloitte in London, says that for revenues to slow at the "pretty low" level of only slightly more than $500 million suggests that sites simply have not found the best way to connect with customers. Consider, by way of contrast, that Americans alone are estimated to have spent more than $13 billion on Valentine's Day gifts.

So this love slump is a bit of mystery. Indeed, it may be just a lull. Everyone in the industry is full of ideas for how to spark a growth revival, from new (lower) pricing plans to providing new kinds of services that people are more willing to pay for than simply finding and communicating with potential date candidates. Brooks predicts that the industry will see "a huge upswing" as sites add new services like Web-camera dates, help arranging dream dates and psychological profiling that attempts to find you a soulmate, not just a hunk with the right hobbies and salary profile. The rub: some of these services are already available--eHarmony, for example, is built around psychological profiles--and have not prevented the slowdown.

Others say the industry needs to move beyond just dating. Bill Tancer, general manager of global research with Hitwise, says e-dating is following the normal trajectory of Internet businesses in general. "There is an environment of hypercompetition where markets are born, grow, plateau and decline, [but] it's not that the activity itself is going to go away." Instead, he predicts, dating sites will evolve into broader forums for social networking.

There are signs this is already happening. One of the new services from Meetic, one of Europe's largest online dating sites, is a mobile-phone network called Superlol, aimed at the 18 to 25 crowd. It allows users to form groups around common friends and interests, not necessarily related to love or sex. Gaydar.co.uk, a dating site in the U.K., is building a larger communications brand, including a radio station. Still, one can't help but marvel that online dating services have begun to let their eyes wander from their first love after only five years. Doesn't that normally take at least seven?