Match Group (NASDAQ:MTCH) is the biggest player in the online dating space, but with that unique position comes plenty of not-so-unique risks.
In this clip from the Industry Focus: Tech podcast, Dylan Lewis and Sarah Priestley talk about a few of the most pressing risks to Match right now, and how the company is working to address them. Also, they explain what Match is hoping to accomplish with their age-ranking pay system on Tinder.
A transcript follows the video.
This podcast was recorded on July 8, 2016.
Dylan Lewis: What are some of the risks you've identified with the company so far?
Sarah Priestley: There's a discussion around, a lot of analysts talk about cannibalization. Greg Blatt, who's the chairman and CEO, has been keen to dissuade people from this view. He's saying that cannibalization is not really something they're suffering from. The issue is slightly more complex in that the soft-wall offering, which is where you don't pay initially -- it's a freemium model. You start and you can upgrade.
Lewis: And the properties that operate on that, Tinder is one of them.
Priestley: Absolutely. I think OKCupid is also. The soft-wall offerings are growing faster than their hard wall. A hard wall is Match.com, where you pay an upfront subscription, you fill in all your questionnaires, and then you get access to the site. From my perspective, that implies a degree of cannibalization. If you're someone who's looking to meet somebody, you may want to try on a free site before you try on the pay site. Whereas, before, when the free sites weren't as popular or available, you may have gone straight toward the hard-wall offering.
Lewis: Yeah. It's really easy to try out something like online dating for free. Particularly with the younger markets, you look at the millennials, the under-30s, which is a very valuable segment to be involved in dating -- they charge people on Tinder that are above 35.
Priestley: Yeah, that, the age-ranking pay is just ... it blows my mind. We both can't really get our head around it. They describe it as offering a discount to younger members. And geographically, also, the pay is weighted. If you're in the U.S., you're going to pay more than in other countries, which makes more sense to me than the age demographic. They have been criticized that this is going to alienate a big portion of the market. However, it is almost a clever play, because you have these people, 18 to 35, that are going to be occupied by the Tinder environment -- this is what they're hoping to. Eventually, I guess, the idea is that they'll mature, and migrate to Match.com, which is their pay model. They have an offering for everybody's taste and preference, but also where they're at in the seriousness of the relationship that they're approaching.
Lewis: Another thing, as people move to the soft-wall properties they have, a concern for me is Tinder's moat isn't huge, in my eyes.
Lewis: You look at the more algorithm-type proprietary matching systems that some of these more old-school online dating platforms use, and you say, there's something to that. They have this ability to match me to someone that I might not know, or I might not see that we're connected in some way, that we'd have chemistry. Whereas, Tinder, it's like, you're staring at someone's photo, you find that person attractive, or there's something in their profile where it's like, I'm interested in this person. And then it's just, do they swipe the same way? Do you both agree? On the technical side, that's not super hard to engineer.
Priestley: No. Interestingly, some psychologists have suggested that Tinder's got it right, that actually this initial attraction is the right way to go. However, you're completely right. From a business perspective, there's nothing clever, really, about ... there's no algorithm, there's no clever metric going on in the background for Tinder. Whereas, if you look at somebody like eHarmony, they have that 200-word questionnaire. A lot of people found that laborious, but it's working for them. Their current ad campaign, "Do you want fast or forever?" really hits the nail on the head with, are you looking for a quick fix, or is this a relationship you're going to have for life? That's where I see that the market share is going to grow. There's always going to be the market of the younger people who aren't looking for something as serious who are going to go to Tinder. But they have so many choices in apps that they can go to. As soon as Tinder makes one wrong move, I can think of 10 other apps off the top of my head that people can use.
Lewis: Yeah, there's just a bevy of free dating apps out there. Hinge, Bumble, to name a few. They also get at something that's very similar to what Tinder does. That's kind of a looming threat. To counter that, there's the network effect with any of these types of businesses. The most compelling part of the platform is that there's tons of other people on it, and being the business that's set the landscape and said: "This is what dating apps should look like." Tinder benefits from that. They have the name recognition, and everyone knows someone that's using it. That's really compelling for new people who are looking to get into the dating space.
Dylan Lewis has no position in any stocks mentioned. Sarah Priestley has no position in any stocks mentioned. The Motley Fool recommends Match Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.