How Ashley Madison and Others Turned Adultery Into a Thriving Business

While people having affairs has always been big business for the hotel and bar industries, adultery has undergone a digital transformation as websites and apps have become an increasingly important part of the cheating picture.  

Whether it's a seedy hookup with someone advertising for no-questions-asked companionship on Craigslist, carnally connecting with an old flame on Facebook  (NASDAQ: FB  ) , or using a website like AshleyMadison.com, which describes itself as the market leader in the infidelity business, affairs are no longer strictly the domain of bars and clubs. People are increasingly using digital means to find partners to cheat on their significant others with and that has created an adultery industry that has grown beyond by-the-hour motels, dimly lit bars, and 24-hour convenience stores selling condoms.

What is AshleyMadison.com?

The king of the online adultery world, AshleyMadison.com is a website that facilitates people looking to have a discreet affair. Operated by Avid Life Media, the company has been around since 2001 and is run by CEO Noel Biderman, who the site states is in a monogamous marriage. Though Ashley Madison makes its money off of people having affairs, the company takes pains to say that it is helping people who were looking to cheat anyway.

"Ashley Madison does not encourage anyone to stray. In fact, if you are having difficulty with your relationship, you should seek counseling," the company wrote in the FAQ section of its website. "However, if you still feel that you will seek a person other than your partner to fill your unmet needs, then we truly believe that our service is the best place to start."

The site is selling that it's a safe way to have an affair. It's attracted a large audience in a number of countries and has continually grown its revenues peddling discreet adultery.

In 2010 AshleyMadison.com had $40 million in worldwide sales, climbing to $60 million in 2011, $90 million in 2012, and $125 million in 2013, according to a release from the privately held company, which claims a 25% profit margin. 

The site has shown fast growth in some markets and been a slower build in others. AshleyMadison.com provided the Fool with the chart below.

 

AshleyMadison.com is not the only website directly selling adultery facilitation, but it is the highest-profile -- Biderman, who holds a degree from Osgoode Hall Law School, has appeared on CNN, Good Morning America, The View, 20/20, to name a few, and he's been interviewed by Time, USA Today, and numerous other media outlets.

Sex is big business

Facebook is not officially in the adultery game -- it's just a tool that has made having an affair easier, so there is no way to quantify the economic impact of adulterers on the company. Cheating is such a popular use (or byproduct) of Facebook that a website, facebookcheating.com, exists to help facilitate cheating by members of the social media site.

In 2010, the American Academy of Matrimonial Lawyers found that 81% of divorce attorneys have seen an increase in the number of cases using social networking evidence during the past five years and more than 66% of those were attributed to Facebook, CNN reported.

Craigslist was once more directly in the cheating game, running a thriving sex ad business -- though it catered to people wanting sex of all relationship statuses, not specifically those looking to have affairs. The company mostly eliminated those ads in 2010 after the site was linked to a murder, which ultimately was the subject of a Lifetime movie, The Craigslist Killer. After that incident and complaints from 17 state attorneys general, Craigslist suspended the section in which people advertised for sex, The New York Post reported. That move was estimated to cost Craigslist around $40 million a year in revenue, according to the paper.

Craigslist suspended the section where people placed sex ads, but has not removed them from the site entirely. Sex purveyors simply found other places to put them, as a quick search under the "personals" section of the site proves. 

Neither of these sites have monetized cheating in as direct and unabashed a way as Ashley Madison has.

Apps may threaten AshleyMadison

While AshleyMadison.com specifically caters to adulterers, two dating apps that are growing in popularity -- Grindr (which is specifically for homosexual or bisexual men looking to meet men) and Tinder match people with whatever companionship they are looking for.

"Dating apps are the easiest way to e-cheat because they are anonymous. You don't have to use your real name or phone number, or even a photo of your face," according to The Luxury Spot.  

Neither site releases financial information but in September 2013, one year after launching, Tinder users had swipe-rated -- the method for telling it which people you like -- 13 billion times with 2 million matches happening each day, Bloomberg BusinessWeek reported. Created by majority owner IAC/InterActiveCorp  (NASDAQ: IACI  ) , Tinder has flirted with ad campaigns, but is not currently monetized. It has been operated as a loss leader by IAC, which has plans to spin off its online dating division that also includes the profitable Match.com, according to Bloomberg BusinessWeek. 
 
Grindr has a more direct avenue to make money -- it sells ads and has a subscription service called Grindr Xtra (because apps are never allowed to have words spelled correctly) that offers a "premium Grindr experience, with bonus features and increased functionality."
 
Neither of these apps specifically target cheaters -- though neither discourages them -- and both have the potential to disrupt Ashely Madison's business as they can certainly work to facilitate adultery without charging users.
 
Cheating powers the web

Digital tools -- be they apps or websites -- make meeting people easier and that certainly applies to those looking to meet others for less than pious reasons. Ashley Madison has built a strong business by being very upfront about what the company does and assuring customers it would protect their personal data.

The company seems especially vulnerable to competition from free apps especially as the younger generations that are using Tinder and Grindr to meet people move on to the logical conclusion of continuing to do so once their hookup desires include affairs.

Facebook has likely been -- and will continue to be -- the biggest platform to solicit adultery on because it reconnects people who know each other already. What was once a romantic notion that at best would have become an awkward drunken pass at a class reunion can now become a private message relationship that moves easily enough from the virtual to the real world. And Facebook makes money as a home for cheaters without ever endorsing the behavior.

Cheating is big business but directly monetizing it has been a challenge that Ashley Madison has managed to overcome. The site has lured customers into paying for its services by being very blunt about its mission and the company's commitment to keeping the adulterous relationships it creates private. Ashley Madison does not leave a trail the way Facebook does where your partner could easily stumble over your indiscretion. That may be distasteful to those who frown upon cheating but it should be a growth business for Ashley Madison.

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