The popular dating app Bumble just witnessed a smashing wall street debut last week after having raised a cool $2.15 billion. So in today's Finshots, we look at the online dating scene and figure out how Bumble has emerged as a top competitor.
The Story
Dating apps can be overwhelming. You have to write a bio. You have to add your pictures. You have to fill out other information and you have to put yourself out there. And matching with your ideal partner can take aeons sometimes. You have to keep liking profile after profile hoping somebody else will show the same kind of interest in you. But you still do it because the need for companionship is so fundamental. And for companies like Match Group (owners of Tinder, Hinge and OkCupid), this has presented itself as a clear monetizable opportunity. But with great market potential, comes great competition. And Bumble is slowly catching up.
But it isn’t easy building a dating app. Especially if you aren’t the first mover. For starters, you have to solve the liquidity problem i.e. ensure there are enough people on the app that will swipe at any given point in time. In the event you don’t manage to sustain the active user base, then you are as good as dead. For instance, back when Whitney Wolfe Herd, the current CEO of Bumble was still working at Tinder, her job was to acquire the initial set of users for the app. As one article in Bloomberg notes —
“(Whitney Wolfe) would go to chapters of her sorority, do her presentation, and have all the girls at the meetings install the app. Then she’d go to the corresponding brother fraternity — they’d open the app and see all these cute girls they knew. Tinder started off with less than 5,000 users before Whitney Wolfe made her trip, and had around 15,000 by the time she returned.”
And once you manage to hit a critical mass, then you’ll have a constant influx of new people flocking to your app, simply because you have the greatest variety to offer. But in 2014, Whitney resigned from Tinder and filed a sexual harassment suit against the company. Tinder had to settle with Whitney. But it eventually paved the way for the young professional to exit the company and start something of her own. And that’s when she decided to start Bumble. It would take a while before the app went mainstream, but Whitney had a clear vision from the get-go.
As she summed up her thoughts in a letter, “In heterosexual relationships, women were to wait, and men were to approach. This led to all sorts of unhealthy dynamics that ultimately disempowered women and created unnecessary pressure for men. This didn’t benefit anyone, but the world kept accepting what always was. This antiquated way of forming relationships remained entrenched as connections moved online, with no guardrails to protect women and other marginalized communities.”
And perhaps the most compelling value proposition emerged from this insight. See, Tinder had pioneered the double opt-in system. You can only match with somebody if both of you show interest. Bumble took it a step further. Even if you match with someone you like on Bumble, you have to wait for the lady to initiate contact. They have to drop a text first. You can’t do it if you are a guy. And in many ways, this was a massive departure from the way dating apps were built. As Bumble put it, this was an app built for women by women. And sure enough, once women started picking bumble over other dating apps, men followed suit.
More importantly, even if the market is littered with multiple players, the opportunity is still huge. This pie called the ‘global singles market’ is projected to grow from 804 million in 2020 to 981 million by 2025. And while it is true that not all singles prefer online dating apps, it’s also true that that trend is changing.
In the US, approximately 40% of new couples meet online. They are not meeting at bars. They are not meeting at restaurants. They are not meeting through mutual friends. They are meeting on apps like Bumble. Also, there was a time when there was some stigma associated with dating apps. That stuff is changing too. And with people now postponing marriage, the pie is only getting bigger. Meanwhile, Bumble is minting money. The company’s revenue grew 35.8% year on year, from $360.1 million in 2018 to $488.9 million in 2019. And the numbers are backed by a very familiar yet robust monetization model. Most dating apps are free to use. However, if you want other perks, you’ll have to start paying up. Want better visibility on the app? Pay extra. Want the opportunity to swipe on more people? Pay extra. Want to see who likes you on the app? Pay extra. There’s a lot of avenues to make money.
Perhaps the only downside here is that the switching cost is minimal. If somebody else can introduce a subtle incremental change in the way online dating works, we could see a lot of people move out of bumble. There’s no reason to stay put. In fact, it’s what led to the creation of Bumble. And it’s something that could topple the company as well. But as it stands, the IPO has been a rousing success and we can’t wait to see where Bumble is headed next.
Until then…
