For two years, Tinder has been able to stay afloat without relying on any kind of revenue stream. Now, the free match-making mobile app is exploring a new money-making model in an effort to cash in on the international $2 billion-a-year online dating industry. What moves will Tinder make to enter this growing market, and can the app make money as fast as it makes matches?
Tinder’s model works. The dating app, which pairs potential hook-ups based on a mere glance and swipe of a user’s photograph, is easy to navigate and eliminates the standard, time-consuming features of traditional dating sites that can be overwhelming for users. This user-friendly approach produces 1.2 billion profile views a day and creates 15 million matches. As a result, Tinder will soon begin offering a “freemium” service to appeal to the app’s growing user base.
Tinder Plus, Tinder’s newly minted subscription-based service, will add opt-in features for a fee while maintaining the app’s free service for those uninterested in a premium account. One such add-on, Passport, will expose users to more matches by eliminating geographical restrictions, providing access to profiles not limited to the user’s location (the existing model limits users to profiles within a 120-mile area). Passport will appeal to the Tinder traveler, allowing users to peruse profiles across the country and across the globe.
The Passport feature will accommodate the company’s expansion outside of the dating sphere and beyond romantic interactions, an effort that Tinder would like to make in the long-term to grow its user base by connecting people on social and professional levels. A recent investment in the app by California-based Benchmark – led by Matt Cohler, Tinder board member and former executive at Facebook (FB) and LinkedIn (LNKD) – suggests Tinder is already thinking about this next move.
Mulligans for Matches?
Tinder Plus will also roll out Undo, a feature that will allow users to recall a profile lost by swiping to the left, a hasty gesture that permanently eliminates potential matches. Tinder co-founder Sean Rad is confident the new services will begin bringing in cash as he insists users are both asking and willing to pay for the added features.
Tinder was born in Hatch Labs, the now defunct mobile startup incubator backed by Tinder’s parent company, Barry Diller’s IAC/InterActive Corp. (IACI). With its ownership of Match.com and OkCupid, IAC leads the online dating market with a reigning 23.7% market share and provides the expertise Tinder will need as it looks to monetize its services via subscription-based features. IAC’s Match Group division estimates Tinder could bring in $75 million in 2015 upon implementing a monetization model via Tinder Plus.
Though sites like Match.com use advertisements to produce revenue, Tinder’s founders are not interested in cashing in on advertising just yet. The nature of the app's mobile format makes ad implementation trickier, and despite initial claims the company would move toward paid messaging and prominent profile placing before it would place ads, both Tinder and IAC acknowledge the app may entertain advertising in the future. Celebrity-sponsored advertisements will also be a part of the model, inviting recognizable names to create profiles to connect with users. (For more, see: Valuing And Investing In Internet Companies.)
The Bottom Line
Tinder has proven it is does not require revenue to be successful. Due to the app’s investor backing, it had the security to grow its business growth model first and revenue model later. The company will want the added cash, however, after a recent and highly publicized sexual harassment and discrimination lawsuit brought about by a former executive. The legal limbo increased costs and prompted IAC to invest an additional $10 million.