Web Dating Game Heats Up

Yahoo!'s (YHOO - Cramer's Take - Stockpickr) Yahoo! Personals and IAC/InterActiveCorp's (IACI - Cramer's Take - Stockpickr) Match.com, two of the largest Internet dating sites, are stepping up their efforts to weed their services of abusive, obnoxious or married people.

Earlier this year, Yahoo! instituted a code of conduct for online daters in which they must swear that they are single and won't be abusive toward other members. The company also has made it easier for members to report misbehavior. Match.Com has added additional people to its fraud and abuse unit, says Thomas Enraght-Moony, a Match.com senior vice president.

The effort comes as the online dating market consolidates and surviving services fight off competition for loyal users from social network sites like Friendster.com and News Corp.'s (NWS - Cramer's Take - Stockpickr) Myspace.com, which also offer free dating, and smaller upstarts such as True.com.

"They have got very significant brands that they have to protect," says Mark Brooks, who runs the blog onlinepersonalswatch.com. "They can't have people who are scamming, spamming, being obscene or being obnoxious. It's very bad for their brand."

Building a brand is key for Internet sites as they vie to win the public's attention. Over the past few months, Yahoo! has added financial columnists to its site and reports from war correspondent Kevin Sites. New York-based InterActive has sought growth through acquisitions, including July's $1.9 billion purchase of the Ask Jeeves search engine.

The enormous emphasis that Web companies place on drawing new users is evident in the recent surge in attention paid to Time Warner's (TWX - Cramer's Take - Stockpickr) America Online. After years of subscriber losses, AOL has emerged in recent months as a hot property because of the reach of its Web sites.

For Yahoo! and IAC, online dating is a serious business because it helps drive traffic, though the dating sites themselves aren't big revenue generators. Sunnyvale, Calif.-based Yahoo! doesn't release specific earnings results for its services. Revenue from fees Yahoo! customers pay for offerings such as dating and fantasy football rose 55% in the third quarter to $170 million, representing about 13% of the company's overall sales in the quarter. Third-quarter sales at Match.Com were $66 million, up 33% from a year earlier.

About 11% of all online users have a profile on an online dating site, according to research by Jupiter Media. The research firm estimates that the U.S. online dating market will hit $516 million this year, a 9% increase from last year. That's a slowdown from the 72% growth seen in 2002 and the 77% growth in 2003.

"The market is reaching maturity," Jupiter Research analyst Nate Elliott told the blog onlinepersonalswatch.com in a recent interview. "Two things have happened. First, people have already gone through online personals sites for the first time. Some subscribe, and then about half of them come back for a second go and some visit but don't subscribe. It gets to a point where so many people have visited these sites and decided whether they want to use them, so there are fewer consumers 'just curious' to have a look. It's no longer the 'new thing.'"

A study by Keynote Systems, a market research firm, found that 38% of online daters felt that people misrepresented themselves on the services. Jupiter Research found that 35% of online daters were somewhat dissatisfied or very dissatisfied with the sites, compared with 29% who liked them.

Match.com's Enraght-Moony counters that the behavior in the online world is no worse than offline. Indeed, demand for online dating continues to be strong as the acceptance of it grows. In February, a survey by WeddingChannel.com found that 12% of engaged or married couples met online.

In order to attract customers, online dating services are trying to attract customers who are serious about meeting someone and leery of being victimized. They also are trying to differentiate themselves by adding premium services like more advanced matching.

Match.com's efforts have paid off. The company ended nine straight quarters of flat profit growth and boosted the number of paid subscribers by 19% in the third quarter to 1.17 million. Yahoo! doesn't provide membership figures. Membership gains were also seen by eHarmony.com and True.Com.

Fighting against scammers is a continual battle for the dating sites. Scammers can be difficult to catch because many are based overseas. Additionally, users often are embarrassed to admit that they have been conned. A news group, anti-spammers@groups.yahoo.com, has been formed on Yahoo! to monitor these scams.

"It's so damn easy to start a dating site," says David Evans, who runs the blog onlinedatinginsider.com. "You can put one up in an afternoon."