The match game

by Cheryl Meyer
Updated 06:43 PM EST, Mar-21-2005

Valentine's Day may be over, but matchmaking between buyers and sellers of online dating sites continues to bloom.
One of the latest nuptials came Feb. 22, when CGI Holding Corp., a Lake Bluff, Ill., owner of Internet and offline properties, announced it had acquired Personals Plus Inc., an operator of several dating and relationship Web sites, for $4.5 million.

The deal received little press, but it signified continuing consolidation of online matchmakers. Internet dating, which generates more than $500 million in annual sales and counts Match.com Inc. and Yahoo! Personals (owned by Yahoo! Inc.) as leaders, has seen a major uptick in deals.

MatchNet Inc., now Spark Networks plc, a Beverly Hills, Calif., operator of Jewish Web site JDate.com and other dating destinations, kicked off the 2004 spree when it bought Point Match Ltd. of Israel, for $6.3 million in January. Two months later, affinity marketer MemberWorks Inc. (now Vertrue Inc.) of Stamford, Conn., snagged Toronto-based Lavalife Corp. for $115 million, and job recruiter Monster Worldwide Inc. said it would buy matchmaker Tickle Inc. for $94 million in cash and stock in May. Those deals were followed by at least three others last fall.

While many acquisitions are small, sources predict larger deals among more established Web-based dating companies.

"If Yahoo! or Match bought us, we would be the swing vote that would give them bragging rights to be the online mass market Internet personals company," says David Simonoff, CEO of Spark Networks, one of the larger players in online dating.

Simonoff, who took over at the company last year, says Spark has been approached by suitors for two years and this year will make its own acquisitions or consider "other scenarios," such as an expansion into other verticals, or a possible sale. San Francisco equity management firm Criterion Capital Management took a 7.4% stake in Spark last fall.

Venture capitalists also are placing bets. eHarmony.com Inc., a Pasadena, Calif., company that requires users to answer personality-based questions and then finds them matches, received $110 million in December from Sequoia Capital and Technology Crossover Ventures in a second round. "We had what I would call a great experience with the different investors in their consideration of eHarmony," says CEO Greg Forgatch.

Co-founder Forgatch says eHarmony has been cash-flow-positive since 2001 and has been approached by potential buyers. Although it carries no advertising and is pricier for users than many rivals, revenue grew 200% and registrations climbed 125% between 2003 and 2004, and it leads in new subscription revenue, he says.

Five months earlier, MarketRange Inc., which runs PerfectMatch.com, got $7 million in a Series B round from Ignition Partners and Mellon Ventures Inc.

"There's a big untapped need of people who want to have serious, long-lasting relationships and who may not feel they fit the eHarmony mold," says John Zagula, a partner at Ignition. There are two categories in Internet dating: for casual daters, which includes Match.com and Yahoo! Personals, and for serious relationships, notably PerfectMatch and eHarmony. The latter is still largely untapped, he says. On its Web site, MarketRange says it is actively pursuing add-on acquisitions.

There are plenty of dating sites to peruse. According to Internet traffic monitor Hitwise Pty. Ltd., 910 Web sites operate in online dating, compared with 750 a year ago, an increase of 21%. These sites include everything from general matchmaking forums like Match.com to more tailored destinations such as veggiedate.com for vegetarians, gamingpassions.com for videogame junkies and democraticsingles.net, for "democrats and progressives."

Friendster Inc., a so-called social networking site, has raised $13.5 million in venture funding to date and expects to be profitable this year. In November, eHarmony announced Friendster would use its compatibility matching system to help members find love. "To this day, Friendster has spent zero dollars on marketing and has approximately 15 million users," says Roger Lee, a partner at Battery Ventures, one of the company's investors alongside Benchmark Capital and Kleiner Perkins Caufield & Byers. Lee says Battery backed Friendster because of its growth, its loyal user base and nonexistent marketing costs. Battery has also invested in online matchmaker Spring Street Networks of New York.

But the industry isn't all wine and roses. While most companies flaunt sales, membership and number of weddings (eHarmony claims responsibility for more than 10,000 marriages), growth has slowed, says Nate Elliott, an analyst at JupiterResearch, a division of Jupitermedia Corp. The sector's overall revenue grew by 73% in 2002 and 77% in 2003 before slowing last year to 19%. This year, Elliott says, the industry will see a 9% rise in revenue, to $516 million.

What's more, 33% fewer consumers are browsing online personals today than a year ago. "It's the simple maturation of the marketplace," Elliott says. "Online dating has hit a critical mass." He says Web users have found their comfort zones and tend to return to familiar sites, rather than browsing randomly.

The slowdown has created challenges. Spark Networks, which lists 12 sites on its home page and more than 10 million members, has seen real success with only two of its properties, JDate.com and AmericanSingles.com. Others, such as CollegeLuv.com, for co-eds, and FaceLink.com, which allows users to display a photo album, haven't garnered as much attention and subscription sales. "We've done a crappy job marketing them," says Simonoff. He calls online dating "a brutal industry."

In August, Spark (then MatchNet), pulled its $100 million initial public offering, citing poor market conditions, and its CEO resigned. Match.com also replaced its CEO last year and laid off 30 workers.

With fewer users looking for their cybermatch, dating sites want to convert more viewers into subscribers, Jupiter reports. Industry-wide conversion rates have risen about 25% in the last year. Many matchmaking sites are also trying to woo serious daters — often older users hoping to find long-term loves rather than a casual fling.

Elliott says there's still room for numerous players, since the sector is twice as large as any other category of paid content. Europe, others say, is an untapped market, and international expansion among the leaders is likely. Some, like Match.com and Spark, already run dating sites in numerous languages, including Dutch and Hebrew.

Experts expect more consolidation, venture activity and new entrants as companies try to lure more than 100 million singles. Alex Hart, managing director at Broadview International LLC and an adviser to Lavalife in the MemberWorks deal, says entrepreneurs will continue to develop interesting technologies despite the glut. Match.com and other startups have launched various mobile data services, which allow members to connect anonymously with singles on cell phones and flirt digitally via instant messaging.

One such startup, WaveMarket Inc., an Emeryville, Calif., developer of a location-based mobile social network, in February received $9.4 million in VC funding from Draper Fisher Jurvetson and BlueRun Ventures (formerly Nokia Venture Partners). "Unless you have something that you really can show is going to get people to migrate to your service, you won't see the VC dollars flying to it," Hart says.

PlanetOut Inc., a San Francisco site for the gay and lesbian community that displays personal ads, had a coming out party of sorts Oct. 14, when it sold 4.65 million shares at $9 apiece, raising $41.9 million. It rose 15.6% in its debut, closing at $10.40.

But most buyout players and their investors remain mum about exit possibilities. eHarmony's Forgatch says, for now, his company is staying focused on its main goal: lowering the divorce rate. "We are about one thing: building lifelong relationships for serious-minded singles," he says. "We're not a date for Friday night."