The business of online dating faces problems of stagnation and market fatigue, but new research conducted by Statista reveals growth opportunities that could revitalize the industry.

MARKET OVERVIEW

First, take a look at the current state of the industry. The actual size of the industry is debatable. The Washington Post calls it a $2.2 billion business. Statista’s 2016 report pegs the online dating market at $1.9 billion in annual sales. IBISWorld puts the total at $3 billion in a Feb. 2017 report. Here’s the full Statista forecast:

Both Statista and IBISWorld say that current growth rates are in the range of 5% to 5.3% annually, but Statista forecasts declining growth rates:

Statista is forecasting basically flat user penetration rates:

That’s a 26.1% penetration rate in 2015, rising to 26.5% penetration in 2021. Note that a widely quoted July 2015 Pew study reported a penetration rate of just 15%.

Taken together, this data paints a pessimistic picture of an industry that does not know how to grow. But is that a result of market saturation and customer fatigue? Or are there other reasons for this mediocre outlook, reasons that might be overcome once identified? Read on for a look at the larger companies in the field.

NOTABLE PLAYERS

Here are the top ten players by name recognition:

(Source: Statista 2017) That’s according to an April 2017 poll of 1,042 adult Internet users.

The two biggest players by revenue, according to several sources, are eHarmony and Match Group; the latter owns well-known brands Match.com, Tinder, PlentyOfFish, and OKCupid. A Washington Post report cites Match and eHarmony as the two “dominant forces in America’s $2.2 billion online-dating industry.”

Match has gone all-in, divesting a non-dating subsidiary — to the extent that analysts worry that the free-to-use Tinder is cannibalizing the subscription-based Match.com mothership. That’s according to a February 2017 report in Barron’s. Most recently, Match missed its earnings estimates by 5.3%.

EHarmony has branched out, hiring a Chief Product Officer from ZipRecruiter last year and opening a new platform for job seekers and hiring organizations. EHarmony’s core dating service is expanding with premium services, such as being able to lurk anonymously.

“There’s an undeniable fact when you have competitors that are free that it’s a downward pricing pressure on us. People are more price sensitive now than they were 10 years ago. We want to be on the side of providing so much value that the price was worth it,” eHarmony CEO Grant Langston told Anne Hyland, an Australian journalist.

Another competitor is Spark Networks (operating ChristianMingle and JDate), which was recently downgraded, and which has just merged with a German firm, Also noteworthy is Bumble, founded by a former Tinder exec, according to the Motley Fool.

A second-tier player, Zoosk has also struggled, laying off workers, and delaying its IPO while experimenting with digital currency.

And the Ashley Madison debacle has exposed not only problems of mismanagement and lax IT security, but it undermines the entire industry with the example of fake profiles that rip off users. That may result in users questioning about profile veracity at all kinds of online dating sites and apps.

To summarize: The online dating industry is stuck in a $2 billion to $3 billion rut, with likely dwindling revenue growth and flat penetration rates. The largest company has missed its most recent revenue target as it struggles against self-cannibalization by its very popular free option. The second-place company is looking to diversify into the job recruitment arena, and lesser competitors are facing obstacles. A forecast of flat-to-low growth may reflect the pessimistic opinion that current industry leaders are poorly positioned to take advantage of coming opportunities.

TURNAROUND TACTICS

Despite the pessimistic data, there are signs in the research that point to solid growth paths through this slough of despondency. For example, let’s consider market penetration. According to 1,042 adult internet users polled by Statista in April 2017, 19% are current dating services users, 27% used these services in the past, and 54% have never used them. Look at each of these user segments in turn.

The first bar is the active user base of current customers. Research shows that these current customers tend to use services a lot. In fact, 87% use their current services at least once a week, with 36% using them daily:

The good news here is that an enthusiastic subscriber base that has such a high engagement speaks to the value users see in these products. Boosting monetizing in this segment will rely on convincing users who currently pay nothing to sign on to some paid aspect of the service. Another obvious path is upselling current subscribers to a higher-cost (and presumably better value) plan. That’s what Match Group is trying with its Tinder Plus service, eHarmony with its eHarmony Premium, and Bumble with Bumble Boost.

What about the 27% of former users who no longer use dating services? Of course, a certain number of these will simply never be potential customers if they are happy in existing relationships. In this way, a successful dating service user measures success by no longer needing the service! However, other former users may be those who failed to succeed with dating services and have given up, or who met with relationship success … for a while … and are planning to jump back in. The key to regaining this business is to be easily available when these users have reasons to try again — if the service can hold their hands through the re-subscription process and give them reasons to try again.

Finally, the majority of those polled — 54% — are adult Internet users who have never used online dating services at all. These potential customers constitute a clear growth path. Here’s a breakdown of the Statista research data by relationship status:

We know that 54% of all adult Internet users have never used dating services. But that’s not because half the population is married. From the data above, 51% of single people have never used these services, so they are the ripest demographic. They are the ones most likely to want to use dating services, but they have not — yet. This half of all single people represents a huge market for expansion.

Why have single people not used dating services? One Statista poll question that asked 1,042 adult internet users about awareness of dating service brands found 67% had heard of Match.com, and 66% had heard of eHarmony. That’s not surprising. But at the very bottom of a long list of brands, the research reveals that fully 13% of respondents had never even heard of any dating service brand at all.

If half of the respondents have used dating services and half have not, it must be that the 13% who are unaware of brands comes from the half who never used dating services. So if the 13% comes from half all respondents, then it makes sense that maybe a quarter of singles who never used a dating service simply have never even heard of any. That portion of singles who have not tried dating services are a ripe demographic for targeted expansion, especially the uninformed quarter of them who could not name a dating service if they tried.

The Statista report also asked 565 adult Internet users polled who had never used a dating app or site to imagine doing so.

The respondents who could imagine using dating services, but who have not, are clearly an untouched market. These are users who are just a couple steps from subscribing, if only they could be led from imagining using dating services to actually giving them a try.

On the other hand, the respondents who could not imagine using such services are a target for the marketing experts and advertising gurus who have the job of selling refrigerators to Eskimos. That’s a tough job, but not an impossible one.

Let’s consider user age. Here’s some older data, based on that Pew Research from 2015, graphed by Statista:

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Below, we see a different set of numbers in a research report based on other Pew data. The details differ, but these two data sets agree that younger people are the most likely demographic to use digital dating services.

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(Source: Pew Research) That’s surely due in large measure to the success of Tinder and the myriad apps inspired by it. Tinder is playing a big role in keeping Match on top, according to the Motley Fool. However, as mentioned above, these users often expect to use the service for free, and up-selling them is a challenge.

Another way to look at the activity of these younger users on apps is by device:

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The ability to access dating apps has really pushed smartphone users to the lead. And once they try online dating services, users tend to be happy with the experience. Here’s some 2015 research from Pew showing that those who use dating services like them:

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(Source: Pew Research)

However, the problems of monetizing free apps and building awareness among digital natives suggest that a more successful new business strategy will look beyond millennials. Young people have already lost whatever shyness they may have had, if ever they did, regarding dating apps. But as the industry loses its stigma, older demographics may be productive targets.

Insider Take:

There is a lot of room for user growth in the dating services industry. The number of adults who have never used these services is substantial, and large subsets of those are (1) single but unfamiliar with services, and (2) open to imagining themselves using dating services. The simplest path for increased penetration into currently untapped demographics is to reach out to those who are uninformed and those who are curious. It is also important for companies seeking subscribers to remain easily available to those who may return to the industry and those who are open to upgrading to higher paying options. With innovative marketing and outreach, the dating services industry does not have to stagnate.