The course of true love never did run smooth, as Shakespeare once said. That there are more than 8,000 dating sites in the world dedicated to bringing people together is a testament to the fact that — even in 2021, with the most advanced matching algorithms — finding a partner is not easy.
But while users of dating apps are often looking for one special someone, the chief marketing officers of these apps need to attract millions of people. And like many network businesses, dating sites must cope with a dilemma: grow the network or grow revenue? A network business needs to succeed, of course, but to attract new users, dating sites often trade revenue to grow their membership by exchanging access to premium features as a kind of commission for a successful referral.
Unfortunately, the value of these referrals is not always clear. Although dating app algorithms are good enough that in 2019, 39% of all couples in the U.S. said they met online and in 2020, 270 million adults worldwide subscribed to a dating site (almost double the number from five years ago), most sites do not have a clear idea of how profitable referred customers are compared to the friends who invited them to join the site. Ironically, given the data-driven nature of the business, dating app marketers generally have to guess whether new members recruited by friends who already belong to the site will be less active on the site and less interested in paying for premium features.
But that may be changing. As a dating site for young professionals, we’ve often faced this tradeoff too — and we decided to deal with it in an original, data-driven way that took the guesswork out of striking a balance between revenue and reach.
Fixing freemium’s flaw
Like many network businesses, the site ran on a freemium model — free use of the basic features, subsidized by users who pay for premium packages. But to encourage growth, the site also encouraged users to introduce friends to the site in return for free access to those special features that are intended ultimately to be the site’s profit center.
This creates a dilemma for most dating sites. A social referral offer generates some referrals from users who would not have paid for the premium features, effectively increasing the number of users in the platform at low cost. It also attracts referrals from users who would have paid but given the option, prefer to work for their subscription, generating more referrals but fewer paying users. Moreover, the number of successful referrals users are required to make before they can access premium features (called the referral threshold) can have important effects on users’ behavior. For example, if referrers end up inviting people who are less likely to subscribe to premium features, their addition to the platform could harm the value of the community in the long run.
We wanted to find out whether it would be possible to design referral programs so that they can balance growth without reducing the profitability of their user base.