Tinder’s most annoying features make it such a good business
Key takeaways:
- Online dating has significantly impacted the way relationships are formed today
- Tinder is one of the most successful mobile-only dating apps — users have a love hate-relationship with it
- Four core annoyances (superficiality, male skew, imperfect matching and inefficient time spent) actually help the success of its business model
Online dating and its societal relevance
Online dating has been around since the beginning of mass adoption of the internet in the 1980s. In its infancy online dating was limited to personal ads on message boards. Fast forward around 40 years and mobile apps have completely reshaped the online dating market. They are often free, easy to use and highly localized two-sided market places that connect users instantly. The below chart shows the advent of online dating and its influence on other means of finding your mate.
Clearly, online dating is having a massive influence on how partnerships are formed with individuals being able to avoid social risk taking such as being introduced by friends, family or coworkers (which can lead to awkward long-term effects if gone wrong). A conservative estimate of the percentage of new relationships begun online in 2019 is at least 65%, but likely over 75% according to Tyro Capital which did some highly entertaining and readable research about the market.
But why is online dating so successful although 42% of users have a negative or somewhat negative experience such services?
This article takes a closer look at Tinder which is one of the most successful apps with 50M users worldwide and almost $1.2B in revenues in 2019.
Dating online is often a frustrating experience
Among people aged 18–29 about half have ever used a dating service in the U.S. according to Pew Research. Many of us have heard positive but also negative stories about the experience and it might not come as a surprise to many that people are more frustrated than hopeful and more pessimistic than optimistic on average after using a dating service (see chart 3).
Why users have a love-hate relationship with Tinder
Tinder is the most popular online dating app in the U. S. and many other markets. It seems to be an app that people love to hate. However, this love-hate relationship is both a bug and a feature for Tinder. I will examine four key factors that make Tinder so annoying and successful at the same time.
Factor 1: “Tinder is a superficial app because it is based only on looks”
Tinder is an app where users upload pictures of themselves and then “swipe” left or right to choose who they like based on their pictures. Although more depth can be added in a short descriptive text or by linking your music taste to the app this is clearly quite a superficial endeavor. Understanding why this annoyance is a feature rather than a bug is not hard to understand. Two main reasons make it so important to the app’s success:
- It is super easy to make a profile and start swiping since the initial effort is limited to uploading pictures of oneself this lowers the threshold of use and thus increases the number of members on the platform giving all users more choice and Tinder more customers to monetize
- It is easy to make a yes-or-no choice because there is less information to be taken into account. Thus users can make dozens or hundreds of choices of swiping left or right in a typical session of using Tinder. This increases the likelihood of generating matches and thus spending more time on the platform chatting and otherwise engaging which is beneficial for Tinder.
Factor 2: “Males get few matches while females are overwhelmed by choice”
In most markets about 80% of users on Tinder are male (Chart 5) with some markets even reaching >90% male users. In business terms we speak of a skewed market. In a perfect market supply and demand should be at equilibrium which would be a 50/50 split in the case of Tinder. However, there is scarcity of females and abundance of males which skews the market significantly. (The effect of homosexuality to the equation is negligible as few users on the platform are homosexuals.)
As a result of this skew almost 60% of men say they receive not enough messages while only 24% of females say the same according to Pew Research. Chart 6 shows the effect of this even more dramatically: the amount of matches which females get is over 10x higher than that of males. Given the 4:1 male-female ratio this means that women are also more picky than men which increases scarcity even further. And this is backed by scientific experiments, too: A study of online dating from 2015 showed “that the bottom 80% of men (in terms of attractiveness) are competing for the bottom 22% of women and the top 78% of women are competing for the top 20% of men.”
While leading to frustrations especially for men Tinder actually benefits from this market skew. Tinder started selling subscriptions for users who want to get ahead of their peers by giving them e.g. extra swipes, increased visibility and increased transparency for a few Dollars a month.
Tinder’s revenue model is largely dependent on such paying subscribers according to the annual report of its parent company Match Group. And the business model has worked quite fine for the company. Chart 7 shows the steady growth in subscribers which is the main contributor to the 123% CAGR we observed in Chart 2.
Factor 3: “Tinder is very bad at matching people who fit together”
This factor is not surprising given how little information Tinder uses to match two users with each other. However, this factor reflects a sort of “churn paradox” of dating apps: if the app works too well then many users will leave because they have found a mate.
As VC Andrew Chen explains this is one reason why dating apps are unattractive to investors: they are in the bad spot of being prone to high churn and low revenue per user. Both of these factors undermine profitability as customer acquisition cost (CAC) is high relative to the lifetime value (LTV) of a user (this is often called the CAC/LTV ratio).
So the bad matching algorithm has the benefit of reducing churn and thus improving the CAC/LTV ratio.
These observations come with a reservation. If the matching algorithm is too bad, churn increases as well. Users that get zero matches become unhappy and immediately leave.
The sweet spot for Tinder is getting a lot of matches, chats and meetings but never actually being successful in finding a mate.
Factor 4: “Tinder is a time-wasting machine”
Another critique of apps like Tinder is that one spends a lot of time on them with very little interactions resulting from it. It is no surprise then that 69% of Tinder users are “light” or inactive users who are rather disengaged.
Whether this is the cause or effect of people feeling like they are wasting time on the app is unclear. However, it is interesting to note that the motivation for using the app is quite diverse (see Chart 8).
With such diverse motivations for using the app it is no surprise that users feel like they are wasting their time since these motivations must at least somewhat align in order to leave to the desired outcome. This in combination with the male skew of Tinder makes for many meaningless interactions.
It does not help that 19% of users use Tinder to boost their self-esteem and 39% to “have something interesting to do” which reflects rather low motivation for actively engaging with other users.
Again the high share of casual users on the app is beneficial for Tinder. It increases superficial engagement such as swiping and messaging which are done on the app but leads to lower offline-engagement such as dates from which Tinder does not directly benefit.
To be clear: if 100% of users engaged in this way Tinder would not be as successful as it is. But having a significant share of non-committed users increases app engagement while lowering successful partnerships and thus permanent churn.
Conclusion: Tinder’s annoyances made it a good business but users are flocking to competing apps
Tinder is often frustrating and flawed. It is superficial, skewed towards men, bad at matching people for relationships and often makes people feel like they are wasting their time. However, these pain points are necessary evils for Tinder. Especially the superficiality and male skew have allowed it to scale and monetize in the way that it did.
However, users have also flocked to competing apps like Bumble, Plenty of Fish, Hinge and others (many of which also owned by Match Group) because of these annoyances. MAU in Germany fell from >1.1M in March ‘17 to <600k in March ’20. In the U. S. the biggest group of Tinder users is now 30–44 with younger cohorts migrating to competing apps. Nevertheless, its continuing ability to capitalize on its annoyances makes Tinder probably the most successful dating app to date.
Disclaimer: I wrote this article in my personal capacity. All opinions are my own and do not reflect the opinions of current or former employers or associates. None of the opinions expressed here should be taken as investment advice.
