Rufus Griscom is just tickled. He thinks he has lined up a hot date-with profitability. The well-known CEO of highbrow erotica site, Nerve.com, has always suffered the same performance anxiety as other innovative Web content brands. "The dilemma for Nerve.com and Salon is that you have one or two million loyal unique users visiting, but how do you make money off of them?" he says. With the ad market tanking, and most users standing firm against subscription models, Griscom thinks he's found the alternative answer. "Users are willing to pay for access to people like them. You sell them access to one another."
Griscom's online personals business will generate over $500,000 in revenues this year, and it has been charging users only since the spring. With 350,000 registered members, 85,000 of whom are actively posting ads, that part of the business is growing 15% a month, on track to gross $3 million in 2002. And since it requires only seven FTEs to manage, "It's an exceptional business-very high margins," he contends. In fact, Nerve is spinning it off into a tech company, Spring Street Networks, which will supply personals services to other publishers so they too finally can realize some cash from their communities. Nerve already partners with Salon.com, TimeOut, Bust, and Metropolis magazines, while eight more are in the pipeline, and Griscom is actually turning clients away. "My view is that what we're looking at in the personals business is the eBay of people. This is going to emerge as a massive, massive business."
An Ebay for the People Market
In some sense, it already has. Online matchmakers UDate, Kiss, MatchNet, and others have been generating serious revenue for years, but ongoing squeamishness about people finding romance on the Web seems to have kept the model off many publishers' radar until now. "Our greatest competition is not other online competitors, it is people's willingness to discuss their participation in online dating more openly," says Cindy Hennessy, president Match.com, a subsidiary of Ticketmaster. Generally considered the leading personals provider online, Match.com grossed $10.7 million in Q2 2001, for an EBITDA profit of $2.8 million.
To be sure, personals do have some extraordinary costs over static content, since they require a scalable technology that can handle profile matching and create dynamic pages. And when you are dealing with people's hearts, customer support is critical. Among Hennessy's staff of 130, sixty handle support, which includes vetting each ad to ensure safety and propriety. Even at his much smaller operation, Griscom admits, "It's a seven-figure proposition building a good personals service." Most publishers will not want to build their own, but partner with these networks.
The payoff, however, can be big and quick because online singles often prefer to pay for their personals. "In the case of dating services, payment might actually be a quality screen that indicates seriousness," says Forrester analyst Dan O'Brien. For instance, Match.com has 220,000 paid subscribers, half of whom use the $24.95 per month plan, while the rest buy into longer packages, up to $99 per year. A newcomer to the space, entertainment network eUniverse, boasts 41,300 active paying users in the first 90 days of its CupidJunction, and claims the site went profitable in just 10 days, drawing more than $200,000 in fee-based revenue a month.
But now that users and publishers seem more willing to engage the power of the personals, the question becomes how many players the space can support and which of several business models will prove the most viable? The situation remains fluid. Hennessy believes "The challenge is scale. In the end, this is a numbers game, not unlike eBay. You have to be distributed broadly enough to intercept the available singles looking for services." So, Match.com promotes its wide selection, 1.8 million member profiles that are fueled by strategic placement on AOL, MSN, AskJeeves, and others. Match.com gives incentives or revenue share when content partners deliver paying customers. Hennessy prefers the flat-fee subscription model, in part because it is reliable income, and it is easier to project for publishers the kind of revenue they can expect from a partnership. In the race for critical mass, there has been lot of consolidation on the top end: Ticketmaster wedding both Match.com and OneandOnly.com; MatchNet seducing SocialNet; and udate exchanging vows with Kiss.com.
Smaller, newer players like Griscom and eUniverse are finding opportunities by drilling audiences vertically, employing alternative pricing models that may appeal more to these niche users, and minimizing their marketing costs. "Having one of the largest female audiences on the Web, we realized early on that we needed to create a site that was very female-centric," says Shawn Gold, co-president, eUniverse. In researching the field, the company found that interest in dating content spiked among 18-to-24-year olds and then again in the 35-to-54 segment. "As far as building a business, the 35-to-54-year olds are driving the revenue in this category," he says. p> Six months in the making, CupidJunction was structured for that most lucrative segment and it benefited from promotion across the parent company's enormous network of entertainment newsletters and sites. Unlike Match.com, which has only a 39% female population, CupidJunction attracted an uncommon female-to-male ratio of 66%-to-34%. Rather than subscription fees, it uses a ladies' night model where women can contact men in the database for free, but men must buy credits (3 for $9.95) to do so. Women prefer this pay-per-contact fee structure because it gives them a greater sense of security and "they receive higher quality contacts and less spam," says Gold.
Nerve's model and focus follows the contours of yet another demographic, the late twentysomethings: urban, well-paid, savvy. "They use personals not because they can't get a date, but for fuel-injecting their dating experience," says Griscom. An increasing number of his members aren't even trolling for romance so much as new friendships. And so he monetizes the access, not just the contact. He feels that an incrementally priced usage-based system retains customers longer than flat-fee subscriptions, and the average user still spends between $15 to $20. Members buy credits in order to make that initial email exchange with each other, but Nerve makes the majority of its personals revenue from an instant messaging system, which charges even more credits to keep people connected live in 30-minute intervals.
For Griscom, facilitating access is the mother lode in this model because as newer P2P technologies like video and voice over IP become standard, the social exchange becomes richer, and so, he thinks, will its value. "You may see people laying out $20 a month today, but when you layer in two-way television, people are willing to spend $50 or $60," he says.
Probably not, counters Hennessy, who feels that "95% of the people aren't terribly comfortable selling themselves in print, so imagine how much more stilted that becomes in video." In fact, one of the interesting reasons for Match.com's success is the amount of editorial effort put into helping people groom their own profiles and present themselves more attractively online to potential partners. In this sense, the Web dating model may be an important harbinger for all content providers. At heart, the Internet is a highly interactive and one-to-one medium. In such a world, publishers no longer simply broadcast content. They must become facilitators of exchanges, the provider of platforms for P2P interaction, as well as conscientious editors who add value to those conversations.