Social networking behemoth Facebook (NASDAQ:FB) is getting into the dating game. Earlier this month at its annual F8 developer conference, the company announced its plans to create a new dating service that would allow users to hopefully find romantic partners. The news has significant implications for dating service incumbents like Match parent IAC, which saw its shares tumble following the revelation.
It's almost surprising that it took Facebook so long to release such a service, given its natural strengths in connecting people and building relationships. From an investing perspective, the big question is how Facebook hopes to monetize the new offering.
"Can I get your Facebook dating profile?"
Recode reported some new details yesterday regarding how the service will work. Users will create separate profiles specifically for the dating service, which will be tied to their primary Facebook accounts. The platform will leverage what it knows about you in an effort to match users with other singles, including things like location or other shared interests. There will even be a new dedicated text-only messaging service within the dating service that is independent of WhatsApp or Messenger. Facebook expects to start testing the service within a matter of months.
Importantly, Facebook has confirmed that it has no intention of monetizing the free dating service with ads, or using any data collected from the service for ad targeting.
The strategic importance of side businesses
This is probably the scariest news for incumbent rivals that have built businesses on dating services, as most online dating platforms charge various types of fees. It's also true that the subscriber bases of these dating services pale in comparison to Facebook's global monthly active user (MAU) base of 2.2 billion, many of which will certainly try out the new service since it will be offered at no additional cost.
However, many tech giants enjoy a certain luxury: They don't need to make money on side businesses as long as those segments provide strategic benefits to their core operations. For example, Facebook's Marketplace section, which is comparable to Craigslist, is similarly free. Facebook doesn't charge for users to list classifieds and does not get a cut of any resultant transactions as it doesn't facilitate payments in any way, either.
Like Marketplace, to the extent that a dating service strengthens user engagement of the core service, which in turn supports the advertising business indirectly, then it's worth it. Rivals should be utterly terrified.