By Betty Carter,2014-11-25 18:00
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    “At our mission is to help people get into successful, emotionally rewarding relationships. But that can’t happen unless there’s another relationship, another connection, that’s built on trust, openness and mutual respect.”- Mission Statement as

    noted on the web site

Company History

    Electric Classifieds Inc., branded as, was founded in the San Francisco Bay area in 1995 by Gary Kremen. Before starting Kremen had gained experience in company development, capital procurement, and website launches during the 1990s. Kremen developed an interest in the possibility of an online dating website through his work with online classifieds, in which there had been numerous “personal” ads placed. He also had extensive knowledge of the implications between intellectual property laws and the Internet which put him in a strategic position for launching his own website. Kremen was instrumental in authoring the original business plan for and raising $8.8 million in funding from private investors and venture


    In 1999 USA Interactive (now known as IAC/ InteractiveCorp) identified’s market potential and acquired the company through their wholly-owned subsidiary Ticketmaster Online/Citysearch for $50 million.1 InteractiveCorp’s primary means of

    growth was through the acquisition of leading online e-commerce companies including’s initial strategy since its inception has been to partner with the most respected internet portals and develop a network of affiliates. Many of its partnerships began in the mid to late 1990’s including portals such as AOL, Excite, MSN, Netscape, and Yahoo!

    After a period of high growth for and the acquisition by InteractiveCorp, Kremen, the original CEO and founder, left to pursue other endeavors. In late 2001 Tim Sullivan was named the new CEO of Sullivan originally served as the vice president of e-commerce for Ticketmaster Online/Citysearch and was well qualified for the role. Under Sullivan’s direction, IAC Personals’ (which encompassed,, and expanded globally and grew to include 30 online dating sites which catered to 17 different languages! One example of’s global expansion was the 2002 purchase of the Derby England based

    2internet companies and for a reported $150 million. The

    acquisition enabled InteractiveCorp to position itself in the European market and added over 237,000 subscribers to’s existing 537,000 subscribers.

    In 2001, featured roughly 1.8 million registered members. More astonishing was that its registrations were growing by 300,000 per month! By December 2002, there

    were more than 5.7 million members and 653,000 paying subscribers. Continuing into December 2004, it was reported that there were over 15 million registered members and

    3roughly 1 million paying subscribers. The most recent information on registrations

    states that there are roughly 60,000 new registrations each day and that is the

    45leading site in terms of registered members worldwide. Under Sullivan’s leadership,

    6revenues increased from $29 million to $185 million between 2000 and 2003. 2004

    was no exception with revenue increasing 6.8% to $198 million and once again Sullivan’s leadership was attributed as the primary driver of success.4

    ndAlthough IAC Personals’ 2 Quarter 2003 balance sheets had shown an increase in both subscribers and revenues, these numbers largely reflected the acquisition of, and, which masked the fact that’s subscriber base had actually decreased by 44,000 users. This was the first decline of’s subscriber base in its history and the company attributed the decline to a cutback in marketing expenditures,

    7and the launch of new services earlier that year.

    During 2004 was identifying weaknesses and restructuring its approach to making profits. In September 2004, Jim Safka was named the new CEO of and the company began to reinvent itself. Safka had extensive experience in increasing revenues and growing accounts of online e-commerce companies such as AT&T wireless and E*Trade.6 As a result of the restructuring, for the 9 months ended September 30, 2005, revenue from IAC Personals grew 23.3% to $181.3 million versus $147 million for the same time period in 2004.

A Change in Organizational Structure and Corporate Culture

    When Safka was named as the new CEO his first responsibilities included assessing the company’s objectives, processes, culture, organizational structure, and the ability to define its position in the market place. Although, the company’s revenues were growing, a critical disconnect was identified across many of the departments in Safka identified three critical “levers” which drive the revenue stream within including: acquisition, retention, and churn. Conversion is the process whereby registered members become paying subscribers. Retention is defined as the lifetime value to of a subscriber but is more broadly defined as the ability to keep members paying as subscribers. Churn is the drop off point for subscribers who cancel or discontinue their renewal subscriptions and default back to nonpaying members. Once Safka had identified these levers, a process was developed to increase accountability for each department with regard to the new lever system.5

    Prior to Safka being named as CEO,’s organizational structure consisted of the following departments: Support, IT, Marketing, Visual Design, Products, Business Development, Web Development, and Customer Support.5 Marketing, Products, and Business development were charged with creating new services to be offered to registered members which would increase involvement and acquisition. IT, Visual Design, and the Developer staff were charged with the Web design.

    Safka restructured the organization to create more accountability between departments and bring focus to the three levers of revenue. Prior to his restructuring there were eight separate departments each with a niche focus within the company. Safka combined Marketing, Visual Design, Business Development, and the developer staff into a new Products Department. This process left the company with four distinct entities including Support, IT, Products, and Customer Support. One new functional area was created through this process that operated within Products. This area was called the New Products Team and was charged with identifying and implementing new services. The Products Department was now solely accountable for the three levers that drove the company’s revenue stream.

    The new organizational structure enabled several project teams, pulled from the Products Department to focus on the creation and implementation of innovative ideas that would enhance the experience. Executive Management would set launch-to-market deadlines and conducted weekly follow-up meetings with individual teams to evaluate their performance. Statistical correlations, called metrics, were developed to measure success and failure rates for new products based on their affects on the three leavers. The ultimate goal was to identify new services that increased conversion and retention while reducing churn.

    Conversion, Retention, and Churn

    The initial phase of growth for was to grow the registered member database through extensive affiliate programs and partnerships including portals such as AOL, MSN, and Yahoo. This initiative was widely regarded as a success in branding the name and acquiring members. Meanwhile, executives at came to the realization that profit margins were diminishing! While the primary emphasis had been placed on the three levers, profitability had not been addressed. found

    8that only 8% of its registered members were paying subscribers, at any one time.

    Research into the problem of low subscriptions showed that it was new registrants, who were enthusiastic about the services being offered, were largely the only ones who were

    willing to pay. Looking back through the data, the Products Department identified a trend in which many previous subscribers had little or no activity on their accounts. It was determined that people in this situation would eventually stop subscribing or abandon altogether. Something had to be done.

    To address the problem of churn as stated above, the Products Department decided to test an e-mail campaign which was intended to capture the “skimmers” who were losing interest and get them involved again.8 First, the project team realized that’s

    services were purchased as an impulse buy. The challenge was to figure out a more sustainable way to entice the user to become interested in the services offered. The project team’s focus was to make the subscription process more interactive, almost like a game. They created an ingenious method of enticing registered members to becoming subscribers by utilizing an animated character named, “Margo” that interacted with the user while they filled out the subscription form. The cartoon character encouraged the user to continue filling out the form, assuring them that every security measure would be used to protect their privacy. The campaign resulted as being one of the most successful means of subscription conversions for the company. The e-mail had an open rate of 12%, and of those who opened it, 52% had completed the form.8

    While increasing conversion rates was important, there was also pressure to maintain costs, specifically the Cost-Per-Acquisition (CPA). To achieve this goal, the company worked with MIVA consultants. MIVA’s expertise was in its ability to find under-

    performing terms and reallocate the budget to those terms which create a higher ROI. The strategy realized a 9% increase in conversions while beating CPA expectations by


    Although the Margo campaign and MIVA were regarded as successes, the Product team understood that it had much more to do to continue increasing the revenue stream. As the benchmark company in the online dating industry, there was the realization that its portal partners were also becoming its competitors. Niche online dating companies were also becoming a threat to their revenue stream.

Competitive Market Forces


    In 2000, five years after’s inception, eHarmony was founded by Dr. Neil Clark Warren. Before creating, Dr. Warren, an evangelical Christian, worked for 35 years as a psychologist specializing in counseling married couples. He also authored two books, “Finding the Love of Your Life” and “Date…or Soul Mate?”,

    10the former selling almost 1,000,000 copies.

    After over 30 years of counseling married couples and research into marital problems, he came to one solid conclusion. In his biography on eHarmony’s website he states, "In almost every case, these were two persons who should never have married each other! They really didn't belong together. They thought they did, but they were not well matched." From there, he identified 29 dimensions that he found were consistently present in successful marriages. Dr. Warren found online dating as an opportunity to take his match-making theories to a new level.

    eHarmony’s competitive advantage is that it establishes its credibility by using a scientifically developed questionnaire based on Dr. Warren’s 29 dimensions. The questionnaire does not just ask for personal hobbies and interests to be superficially compared to other profiles, but measures the user by the 29 dimensions model that Dr. Warren has developed, which matches people up by deeper criteria than simply their hobbies and interests. eHarmony is the most expensive online dating service in the industry, requiring a minimum investment of $49.95. eHarmony’s users are willing to pay this price because of the credible method of match-making. The website currently

    11has 7 million registered members and acquires 15,000 new users a day. In the past

    year alone eHarmony's customer base has grown by 41%. When this figure is compared to, which only increased by 2%, eHarmony is seen as an increasingly threatening competitor.

Yahoo! Personals

    When was founded in 1995, and Yahoo!Personals were partnered together. However, in 1997 broke away from a partnership with Match and began offering an online dating service that mimicked From 1997 on, and Yahoo!Personals have been the top competitors in the online dating market and have been more or less competing neck to neck. In 2004, Yahoo!Personals had the leading market share in online dating sites at 18.23% while was at 12.48%.

    Yahoo!Personals offers an advantage over with a price of $16.66 per month,

    12the cheapest in the industry. Success of this product has been limited however, for

    three primary reasons. First, while is available through multiple portals, Yahoo is limited to just one. Second, while has established a brand for online dating, the name Yahoo is known as a web portal and search engine. Third, Yahoo!Personals offers a similar service as Match, but it fails to utilize the technology of matchmaking to the extent that Match does because of its limited selection of profiles.

Friendster and other social networking web sites

    A social networking web site is a different environment than the online dating sites, but still constitutes a competitive force against because both sites exist to connect people through the internet. Friendster, the leading social networking site, was founded

    13in 2002 by entrepreneur Jonathan Abrams. Though Friendster is not branded as a

    dating site, it is still considered to have 8.26% market share in the online dating market,

    14which means they are third behind Yahoo!Personals and According to

    Hoovers Online, Friendster has 16 million registered members. The appeal of these sites is a casual environment for meeting people through the internet. Users do not have to fill out a lengthy questionnaire to determine who would be the most compatible match for them, but rather they set up their own profiles, and create their own online community by tagging other users as their friends. Social network sites receive advertisement revenue and do not charge a subscription. These sites are an alternative to and many people may prefer them for the purposes of dating. Despite this untapped segment of the

    online dating market, would alienate its current segment, users with the sole goal of finding dates, by trying to penetrate into the social networking realm.

Niche sites

    Niche dating sites have exploded across the internet and are strong competing forces in the industry. In just the last year over 100 dating sites entered the market. No single brand threatens's market share directly, but the combined share these smaller sites have been acquiring is of concern., a dating site targeted towards those of the Jewish faith, is the most popular among the niche dating site market. Launched in

    151997, it now has 600,000 members and charges $34.95 monthly for a subscription.

Business Model

    16Building an affiliate network’s affiliate program consists of thousands of independent internet websites that help brand the name in several niche markets that it not otherwise target. Many of these highly specialized websites would provide a link, or an advertisement offering’s services. The affiliate program is regarded as a critical component of's marketing strategy. Many of these affiliates serve localized markets in cities all across the world. The affiliate websites help serve highly specialized markets such as sports enthusiasts, singles groups, alternative lifestyles, classifieds, and support groups.

    The affiliates receive a two tiered commission package which guarantees a 75% commission on all new subscription revenue. A 25% bonus commission is included for the affiliates that generate 30 or more subscriptions in any calendar month. Thus the affiliates have the ability to gain 100% commissions.

    Affiliate commissions ( only)

     Subscription 75% Commission 100% Commission

    1-month / $29.99 $22.49 $29.99

    3-month / $50.07 $37.55 $50.07

    6-month / $77.94 $58.46 $77.94

Building a portal partnership network partners with some of the most trusted and stable portals on the Internet. The partnership strategy is to create a mutually beneficial situation for both and the company that it partners with. Notable partners include MSN, AOL, and Yahoo.

    It also partners with specialized websites such as Oh!, Oxygen, BET Interactive, InfoSpace, and also partnered with Comcast, the largest digital cable/ DSL provider in the United State.

Services offered through’s partner websites

    Although’s prior business model emphasized a largely undefined and heterogeneous market, their product team has identified many niche markets with more specific needs and expectations. The product team recognized that the more sophisticated markets would be more likely to convert into paying subscribers but only if the right service was offered to them. wanted to tap into those markets so they launched many different online dating websites in an attempt to better serve the online dating market. is currently being test marketed in Denver, San Diego, Seattle and Washington DC, and is set to launch nationally in early 2006. will enhance the online dating experience by focusing on the market that seeks a serious relationship, and even marriage. The project team, in collaboration with a

    world renowned biological anthropologist, developed an algorithm that would search and match member profiles based on the answers they provided on the personality assessment. The personality assessment takes about 20 minutes to fill out, and asks numerous questions, about one’s personal interests. After a match is made, the two compatible members would then follow a patented process called 1-2-3-Meet?, to finally meet in a

    17private real world setting., based in Derby, England, is targeted towards people who are returning to the dating scene after the end of a previous serious relationship. It is focused more on those people who are looking for fun and friendship online. Hitwise, a leading industry analyst, has confirmed that is the leading online dating service in England,

    18commanding 13.92% of the online dating market. also operates another

    online dating site called which targets the 35-45 year old demographic. claims that 5,000 new registered members sign up each day. and share the same registered member database. is touted as one of the original online dating websites. Since it’s inception in 1997, has developed a large registered member database. This online dating website caters to the casual dater who is returning to the dating scene. allows for the registered member to state in their profile whether they

    19are bi-sexual or even bi-curious, which many other online dating websites do not offer., caters to the alternative lifestyle demographic, and is regarded as a niche online dating site.’s theme is considered more adventuresome and fun seeking as opposed to the desire to seek a meaningful relationship. As a consequence of IAC/ InteractiveCorp focusing most of its resources on and, has seen its registered memberships gradually decrease, and there is some discussion as to whether fits in the business model.19

    Currently, serves as a website that rates the other online dating partner websites. It gives a brief description of each online dating service’s features, subscription

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