Tuesday, April 3, 2007

Free is the natural online way to move forward

Hot or Not, the online dating and rating site, is about to end its main revenue stream — subscriptions — and focus instead on online ads and transactions, like selling virtual flowers. Hot or Not founder James Hong, who has gotten rich off of the subscriptions of his cash-cow, will be making its US$6 a month "meeting" services a free subscription.

Why? James says that free is the future.

Free sites are destroying pay sites (at least the ones that do not have extremely powerful network effects.. which dating sites generally do not because users can (and often do) join multiple services.). . . Sites like Match.com, Yahoo Personals, etc.. are going to be in a lot of trouble. In china almost all the dating sites are free and almost all are ad supported.

James explains it as when the company started out in 2000, subscriptions were the only way for a tiny site like theirs to survive. But as ad-targeting improved, and ad dollars moved online, ad pricing has reached the level where an individual or a streamlined small company can make a significant profit.

James says the online dating industry is reaching a “strategic inflection point” as the growth of the amount of paying subscribers for these sites becomes saturated and are forced to generate more revenue from existing subscribers. Over the long run, the result is fewer new subscribers, and a disappearing userbase.

With online advertising growing exponential each year and in the UK, the online advertising had just surpassed newspapers advertising for the first time in 2006, its clear that with improved and targeted online advertising, many similar services will be free.

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