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http://www.wired.com/news/business/0,1367,56940,00.html02:00 AM Dec. 20, 2002 PT
In these days of corporate belt-tightening, it's not the kind of news that pops up very often.
A small company with a lightly traded stock on a low-profile exchange suddenly gets a buyout offer for more than triple its value from one of the biggest media companies on the planet.
To make it even odder, it's a company so seemingly passé that it still has a dot-com at the end of its name.
But online dating experts say the explanation for Thursday's announcement by USA Interactive (USAI) that it will shell out approximately $150 million in stock to purchase British matchmaking site uDate.com was simple:
While other industries falter in the face of a continuing economic slowdown, Internet personals sites are going gangbusters.
"The personals category is one that has remained below the radar screen," said Stephen Kin, an analyst at comScore Media Metrix. "But growth rates have really outpaced the rest of the Internet."
Kin says it's difficult to get "self-reported" data from individual users of online personals sites. But traffic-measurement statistics show dating sites are getting plenty of patronage from the millions of people who pretend never to use them.
In November, an estimated 24 million Internet users in the United States visited online personals sites, according to comScore. Revenues at dating sites that charge subscription fees rose by more than 500 percent in the first quarter of this year compared to the same period last year, according to the most recent data available.
"There is still a stigma for a lot of people," said Joe Schwartz, author of The Complete Idiot’s Guide to Online Dating and Relating. "But the fact is people are succeeding in finding gratifying relationships through the Web."
A number of sites that cater to singles are finding equally gratifying profit margins. While many investors continue to view the term "dot-com business" as a synonym for "profitless money pit," financial results made public by online personals companies and their corporate parents paint a different picture.
UDate, for example, posted a profit of $3.4 million on revenue of $10.6 million in its most recent quarter. Sales at the company, which runs the websites uDate.com and Kiss.com, rose 61 percent compared to a year ago, while profits were up 554 percent.
Ticketmaster (TMCS), which owns dating site Match.com and is being acquired by USA Interactive, said the number of paying subscribers to personals sites topped 653,000 in its last quarter, up from 253,000 in the same period in 2001. Rival Yahoo credited an increase in fees to its paid personals sites with increasing its quarterly profit.
"This is a profitable space. It's profitable because consumers pay money for it because it serves a need," said Gary Kremen, who founded Match.com in 1993.
Although Kremen has since moved on to one of the Net's other profitable niches, and is running the website Sex.com, he still views personals as one of the most lucrative businesses online. Plenty of free matchmaking sites exist, but Kremen says people who are serious about finding love (or lust) online usually gravitate to subscription sites with more extensive databases and other bells and whistles.
Allowing some room for growth, some experts doubt the phenomenal increases in returns these companies posted in the last couple of years will last much longer.
"I don't think it can continue at these rates," said Schwartz, who says much of the early success of personal sites was fueled by singles in major metropolitan areas.
Schwartz believes much of the recent uptick in traffic to dating sites is coming from Internet users in small cities and rural areas, who are just being introduced to the concept.
Nonetheless, John Nobile, an analyst at investment firm Taglich Brothers (and to his knowledge the only analyst following uDate prior to Thursday's buyout announcement) remains bullish.
Back in mid-November, when uDate was trading for $1.60 a share, Nobile published a report (PDF) projecting that the company would hit $6.66 in the next 15 months. At the time, he rated the Derby, England, firm and Match.com as the two top online dating businesses.
Combining the two into one, Nobile said Thursday "is probably good for both companies." Certainly it's good for uDate shareholders, who saw the value of their stock holdings more than double after the deal was announced.
But few expect the combination of uDate and Match.com to pose a grave threat to competitors. Currently, enough subscription revenue exists to support several large players, including Yahoo Personals and Matchmaker.com (owned by Wired News' parent company Terra Lycos), along with uDate and Match.com.
Along with the big players, Schwartz says a number of popular sites cater to a narrower audience. Examples include Jdate.com, a site for Jewish singles, Edwina.com, which targets gays and lesbians, and a number of Christian sites. Many of the larger sites also have sections for people who live in the same place or have interests in common.
Strategies for getting paying subscribers vary from site to site, though a common approach is to offer some services for free. Users who want additional features, such as secure instant messaging or more extensive profiles of potential matches, pay a fee.
For Match.com, Kremen said an early strategy that paid off well was to market exclusively to women, who, according to comScore, account for 46 percent of visitors to personals sites.
"If you have a good place for women, they stay and men follow," said Kremen, who compared the concept to "Ladies Nights" at bars, which let women drink for free in the hopes of attracting male patrons.
Whether uDate will emulate that strategy remains to be seen.
For now, executives are probably still celebrating the circumstances that allowed a matchmaking site whose stock once traded for below $1 a share to find itself hitched to a very deep-pocketed suitor.
