Hive Blog

I was sent an article in the New York Times about Markus Frind, profiling his success in creating a free dating website Plenty of Fish.

Markus took the formula “find a service which every competitor is charging money for use and give the service away for free and display advertising to pay for the service” and made it work in a big way for Plenty of Fish. The site boasts over 1.7 billion page views and 70 million visitors per month. That’s pretty good for an operation whose entire staff count can fit in a broom closet.

If you don’t know by now how the big fish makes his money, it’s really quite simple: advertising while keeping expenses low. He can get away with advertising on his site since all the other competitors charge money for the same service.  Users of Plenty of Fish tolerate the ads because they are offered a service they would  have to pay real money for elsewhere.

In fact, I would say the users tolerate a lot more than just advertising. They tolerate a poor layout, bad asthetics, confusing linkage and a few features that don’t quite work as well as they could.

I’m not trying to hammer Markus for these defects. I’d go so far as to say that he’d be the first to acknowledge them.

In fact, he has little incentive to fix these issues. The advertising is cleverly inserted into the site everywhere. In fact, it’s hard to distinguish where an ad begins and where the site continues. That’s bonus for Markus since users are more likely to click his advertising links by accident, thinking they are part of the site, especially when you factor in that knowing where to click is confusing at times. Not that I should need to spell this out, but increased click through rates equals increased revenues from advertising.

Markus has to keep his costs down, so spending money on making the website pretty and perfect cut into his profits. Make no mistake, Markus is a true businessman and he’s there to make money. Since the users will tolerate lower standards (and free dating does often require lowering standards), why should he raise them only to raise their expectations?

Further, glitches like distorted thumbnails cause people to click through to the real profiles, increasing page views and presenting more advertising. Why would he ever want to fix that issue? He would surely rather his fishies swim quickly than drown slowly.

Somehow, I don’t peg Markus as a dumb guy, in fact from what I read he seems refreshingly smart and remarkably candid which makes me discount the accusations that he is a liar when it comes to his revenues. Besides, you can confirm his stats yourself. If you haven’t installed Alexa toolbar, go do it now. On Firefox, it installs itself in the status bar which is wasted space anyway.

It’s not in any dating site’s interest to actually find most people a match. Yes, they do have incentives to find some matches for the referral factor, e.g. “my friend tried the Plenty of Frogs site and found her prince charming, you should give it a try too!” It’s good to have a few testimonials but bad if the site is so effective that everyone hooks up quickly. Besides, there is plenty of advice from youtube users on how to increase your dating chances, so don’t blame Markus entirely.

The success of such a free site comes as a double edged sword for Markus. The Plenty of Fish founder is discussing how he is letting millions of dollars in paid dating revenue slip through his fingers.

This is where his own perverse incentives will come back to bite him and his users like a Purana. Given that he has a good business mind, I doubt he will fail, but I think it’s important to understand incentives and the human animal to avoid the pitfalls.

What else drives up the ad hit rate for Plenty of Fish? For one, failure to find a good fish. Most users who are finding success won’t have much incentive to try other paid sites. The barrier to entry for new users on Plenty of Fish is pretty low and standards are kept down.

With the announcement that Match.com is abandoning paid dating in favour of free dating, Markus will face new competition and he acknowledges the likelihood of others to follow. A good deal of his advertising revenue comes from other online dating sites. If he improves the quality of his site,  advertising hit rates will drop. If he fails to improve on quality, competitors could be eating some tasty catfish. Although being the biggest does offer some protection, there is nothing preventing users from creating joint profiles using other free services. After all, there are plenty of fish in the sea.

If Markus promotes his own service from Plenty of Fish, he will lose advertising revenue. The more he promotes his site, the more revenue he loses. Additionally, advertisers might become less willing to advertise with him once he has a competing paid site promoted on his own site. This may not be an issue if he makes more money off his paid site than he loses in a free site.

Markus may face revolt from his user base who will be plenty aware of his incentive not to deliver the best free site in hopes of promoting his paid service and these users may end up swimming upstream to other competing free services.

If Markus sees a competitive advantage for a feature, he can add it to Plenty of Fish right now. He can do so and kill off his competition. He can improve Plenty of Fish to compete against other free sites. With a paid site, he will have to debate adding the feature or improving his free service to kill competition or risk leaving the competition alive to fight another day in favour of keeping the improvements in his paid site.

Markus likely has money in the bank and maybe his best bet would be to lose his advertising revenue and promote his own site exclusively for a short term loss with a long term gain. This is a big risk strategy though; once advertising is gone from his site, his users won’t tolerate it coming back, so he has to make sure that his own advertising is as annoying as the advertising his users already tolerate.

Finally, Markus may suffer a  lifestyle change. He is used to a small staff. Running a big staff is far different than running a small staff. If he goes down this path, I recommend he find someone who has experience to run such a team and allow himself to concentrate on what he does best: business.