Facebook enters the online dating market in the UK
Strategy Analysis
1. BUSINESS DESCRIPTION
Facebook Dating is a business unit within Facebook that first launched in September 2019 in the USA market and October 2020 in the UK & European markets [1]. It was launched as a feature within the Facebook already pre-existing application and competes within the online dating market.
The online dating market is composed of online services that offer a platform where its users can flirt, chat or fall in love. Around 30% of U.S. adults say they have used a dating site or app in the past [2]. From that, 23% have been on a date with another user of the platform or site and 12% have been in a committed relationship or married to someone they met in the platform or site [3]. The market is estimated to have a revenue of over $80 million in the US alone [4].
Main competitors in this market, as seen in Figure 1, can be divided into two distinctive categories. Firstly there are phone applications such as Tinder, Bumble or Hinge and on the other side, there are dating websites such as POF, Match.com and OkCupid. Facebook Dating is only available within the already existing Facebook application, therefore belonging to the first category in the market.
Tinder is the most popular online dating service in both the USA and Europe by number of users. However, due to the nature of the market, a large number of users actually have accounts in more than one dating service. Most of the services have a free version and a premium version to access exclusive features, following the freemium model.
2. STRATEGY EVALUATION
In order to evaluate the current strategy of Facebook dating, this paper will use four different frameworks from the course material: Resource analysis VRIO Framework, Generic strategies and activity systems Framework, Perceptual Mapping Competitive Analysis Framework and Multi-sided markets/Platforms Framework.
A. Resource analysis VRIO Framework
The first framework we will look at is the VRIO Framework, in order to analyse the internal resources and capabilities of Facebook Dating. This would help determine what competitive advantages a Facebook Dating is likely to yield within online dating platforms.
In order to do so, we will be looking into Value, Rarity, Inimitability and Organization in for some of the key resources in the platform.
i. Volume of data — The high amount of data is definitely a valuable resource for creating a matching algorithm. Even if a number of online dating platforms have been around for over 10 years (Figure 2), it can be argued that the power of Facebook when it comes to the data resource is rare. Most of the users in dating platforms are not there for the long term, therefore, the information accumulated over the years by a dating platform, even if active for the same amount of years, is way less than that of a social network, where you will spend more time in, whether single or not. This is therefore inimitable. In fact, most of the competitors actually prompt users to link them to their Facebook profile in order to be able to leverage some of that information. For example, Tinder uses Facebook profiles to match you up with people of similar interests [5]. Facebook Dating definitely has the capacity and the resources to exploit the resource of data as Facebook has already been using data as a key resource in the profitability of the company. Therefore pointing towards data being a sustained advantage.
ii. Space within the Facebook app — Being within the Facebook app makes Facebook Dating easy and accessible to users, no need to download an extra app, making it valuable. This is rare as no other online dating platform is part of an already existing social network and inimitable as no online dating platform will be able to be a space on Facebook or Instagram. Facebook has the capacity and resources to take advantage of the location of the platform. Therefore pointing towards location being a sustained advantage.
iii. Brand — By being a business unit of Facebook, all associations will transfer to Facebook Dating, being very valuable as Facebook is widely known. This is rare as no other online dating platform has such association and inimitable as Facebook would not work with a competitor. Facebook has the capacity and resources to take advantage of this through advertising. Therefore pointing towards brand being a sustained advantage.
iv. Secret Crush — This is a valuable feature, as it will be a way to check if anyone in your existing network has a reciprocated crush on you (Appendix 2). This is not offered by any other platform right now, meaning it is rare. However, it is possible to imitate, although hard, as they would have to connect with Instagram, Facebook or another social network.
B. Generic strategies and activity systems Framework
Next framework we will be using is an activity system, to analyse Facebook Dating strategies and source of competitive advantage through the mapping of an activity system. First, it is important to determine what Facebook Dating competitive advantages are, highlighted in purple in Figure 3. The main competitive advantage found is that Facebook dating is a space within the already existing Facebook app. Therefore being the root of the other two competitive advantages: extensive data on users and an extensive user base.
Once the activities are mapped, it is important to point out that the activities are densely interconnected, supporting the idea that it is a strong strategy.
Through this diagram, we can identify that Facebook Dating is using a differentiation strategy to increase the user's willingness to join by “providing a product or service that is superior to those of competitors”. In this case, the service is completely free, however, Facebook may be using the data provided to “personalize your experience” and for advertising purposes across other Facebook products.
C. Positioning Analysis Framework
To evaluate how Facebook Dating is positioned compared to the main competitors in the online dating services market, we first need to outline a positioning statement of Facebook dating.
In order to be able to write a positioning statement, we will have to identify the target market frame of reference, point of difference, a reason to believe. The target market, in this case, is quite clear, single people. The point of reference is the market it operates in, in this case, it is the online dating platform market. Point of preference is that it will help you find the best potential partners compared to its competitors. Finally, the reason to believe is the competitive advantage that it is attached to an already existing social network platform that has been collecting information on each user’s likes for years.
Therefore the positioning statement would look something like this:
“Among single people, Facebook Dating is the online dating platform that will help you find the best potential partners because it is well informed on your pre-existing likes and preferences.”
Once the positioning statement has been established it is time to position Facebook Dating within the online dating platform market and create a perceptual map. In order to do so, we first need to choose the attribute that will be measured. Useful perceptual maps focus on attributes that drive customer purchase decisions and for which there are meaningful trade-offs.
After careful consideration, we decided that the key features when choosing a platform are the objective (Committed or Uncommitted relationship) and the audience (general or niche). Once this is evaluated for each of the competitors, we are ready to map the competitors in the market as shown in Figure 4. The last step is to place Facebook dating within the map.
We believe Facebook Dating would lie somewhere within the purple oval outlined in Figure 4. This is due to the fact that it would have the potential for the highest number of users as it is easily integrated within the Facebook app, so users can be prompted to join easily, especially as Facebook has data on who is single and who is not. This means that it should score the highest in the general audience out of all apps, due to the low cost and effort of joining.
When it comes to the objective of the users this is a bit more unclear. We believe that it would be somewhere in the middle towards a committed relationship. This is due to the fact that if Facebook is able to leverage its resources, the quality of the matches should be above all the other dating sites according to the competitive advantage outlined in the previous framework. If the quality of matches is high, it will mean a high compatibility, resulting in people more likely to end up committing to that user. On top of that, it can be argued that if a user is searching a less committed relationship it will automatically look for those in the platform where they know they are more likely to find them eg. Tinder, Grindr…
D. Multi-sided markets/Platforms Framework
The last framework we will look into is the multi-sided markets framework. Multi-sided markets are those in which there are at least two sets of “users” interacting through a central intermediary and at least one side provide the others with “network benefits”. In this specific case, we will be looking at heterosexual dating only, where one side of the market is the female users and the other side is the male users in the platform.
This can be seen as a multi-sided market as there are two sets of users interacting through the dating site or dating app. When it comes to network benefits, we have to look into the dynamics of the platform.
Network benefits affect the customer’s willingness-to-pay for a product is partially based on the number of other users. Although in this case there is no exchange of monetary value, there is definitely an indirect network benefit. This means that the WTP depends on users on the other side of the market. In this case, the WTP of males will increase with a higher number of female users in the platform and vice-versa. Therefore meaning that the platform is viable because there are two positive indirect network effects.
In terms of strength it can be said that in this example, demand and supply are more or less heterogeneous. This really depends on what platform it is being used, as those targeting more uncommitted relationships tend to have a very uneven split (Tinder: 78% Male, 22% Female) [7] whilst other online dating platforms geared towards committed relationships tend to be more evenly split.
On top of that, it is interesting to mention that users appreciate mobility. The good thing is that most online dating platforms eg. Tinder, Bumble and even Facebook Dating, are geo-location based, showing users that are within your current area. So by being able to use the platform wherever you are it increases the strength of the indirect network effects.
Finally, it is also important to point out that Facebook Dating is a completely free platform so far, in contrast to other online dating platforms that usually follow a freemium model where they charge for specific “exclusive” features [8]. However, it is true that most platforms like to build an active and loyal user base before introducing the paid features. Therefore, it could be a matter of time before Facebook develops a freemium pricing model for Facebook Dating too.
3. RECOMMENDATIONS
A. Identify Key Challenges
The primary strategic challenges Facebook Dating is currently facing include the issues of having a saturated mature market. Trends in the last few years point towards a decrease in the revenue growth of the market (Appendix 3). On top of that, there are plenty of competitors with over 1,500 dating apps or websites [9]. Some of which cater to very specific needs of the user eg. Christian online dating platforms such as Christian Mingle. The key issue here is convincing the users they need to join another platform and why doing so is the best way to find a romantic relationship.
Another key issue could be privacy and anonymity. As pointed out by Melissa Lin [10], “some users might not like having both activities live on one app” and might struggle to see Facebook as a dating platform and a social network at the same time. This would create an issue that would make users wary of friends and family finding out their online profiles and therefore putting them off from using Facebook Dating, instead of going for other platforms.
B. Simple Rules
In conclusion, we believe the following two rules will aid executives in their decision-making:
- Facebook dating should aim to have 90% of the single Facebook users aware of Facebook Dating to be able to grow their user base. In order to achieve this, they should use the information they already hold for the majority of the users, about their current relationship status and persuade the 200 million [11] that have their relationship status set to single to join through notifications and advertising within the app. This will be the fastest most efficient way to grow their market share and compete in the market, especially as most Facebook users surveyed are unaware of the Facebook Daring feature [12].
- Facebook should abandon the Facebook Dating space after 24 months if they are not able to capture at least 1% of users that already have single as their relationship status in their Facebook profile (2 million). Although the feature is very new in the European market, it has been around for close to 2 years in the USA and other key markets. However, Facebook does not publish much information on the success of this space. This could mean that they are not being successful at differentiating from established competitors and capturing the target market. Facebook Dating is a free service in the app and shows no advertising to the user, therefore resources developing this space could be used elsewhere where the user time spent in the app generates more revenue.
C. Other Recommendations
Facebook has the advantage that around 98% of users of other online dating platforms have a Facebook profile [13], which decreases market barrier entry. They could use that information to specifically target not only those users that have signalled that they are single in their Facebook profile, but any users that have used Facebook to sign up for any of the competitor's platforms (eg. Tinder, Bumble or Hinge which all provide that option). This way they know that the user is already open to online dating platforms making it more specific targeting as they are more likely to join an extra platform than someone who has never tried online dating before.
On top of that, Facebook Dating is a completely free space. In order to provide more value to Facebook, it could adopt the Freemium model that most of the other online dating platforms operate under. This would allow Facebook Dating to become a new revenue stream of Facebook, therefore becoming more important in the priorities of within the company. Furthermore, this could lead to more resources being put towards its improvement if it is able to generate enough revenue.
Lastly, I would make it clear to all users that Facebook Dating is a separate space to Facebook through a marketing campaign to its target audience within the app. It needs to be clear that key information disclosed on the platform will not be used for other purposes on the app. Transparency and privacy are key issues with Facebook users and it needs to be addressed if Facebook wants this space to succeed. They need to clearly state what information will be used for advertising purposes and which will only be used towards the matching algorithm in simple terms that the user will understand, with the goal of building trust. If trust is not built, Facebook Dating will fail to succeed.
4. APPENDIX
Appendix 1: VRIO Framework Analysis
Secret Crush allows a user to choose a number of Facebook friends or Instagram followers they have a crush on. This information will only be released to the other party if it is reciprocated.
Appendix 3: Online Dating Market Trends
5. BIBLIOGRAPHY
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