Bloom off the rose: online dating services struggle to keep market share.

AMERICA'S love affair with online dating appears to be cooling.

After two-and-a-half hot-and-heavy years, the overall category has been declining as several of the top players struggle to maintain market share.

Local companies such as Beverly Hills-based MatchNet plc, which operates AmericanSingles.com and JDate.com, and Pasadena-based eHarmony, which tries to differentiate itself by its detailed questionnaire, have two of the Top 5 dating sites. But being successful isn't as easy as it once was.

"Growth in the industry is slowing down," said Nate Elliott, associate analyst with Jupitermedia Corp.'s JupiterResearch. "The market's maturing."

Excluding porn, personals and dating were still the leading paid content category for the first half of this year, with consumers spending $227.9 million, according to a study by comScore Networks for the Online Publishers Association.

But after hitting its peak in the third quarter of 2003, the growth in consumer spending in the online personals and dating category has slowed in each of the last three quarters. JupiterResearch forecasts 2004 spending at $473 million, up 19 percent from 2003. In 2005, it expects spending to rise just 9 percent.

The slowing could represent the start of a shakeout in the business. It's relatively easy to start an online dating service, and at the end of November, there were 844 lifestyle and dating sites, a 38 percent increase since the start of the year, according to Hitwise Inc. However, many of these are niche players trying to gain a foothold in a business that's increasingly being dominated by several large services, including Yahoo Personals, eHarmony and Match.com.

"In the long term the sites that are in the lead right now are in a great position," Elliott said. "The industry is not going to be growing that quickly in the next couple of years and it's going to be hard for others to overtake them."

New demographics 

Still, it's a business that's hard to categorize. Online dating customers cover everyone from retirees seeking companionship in their later years to 20-somethings either looking for love or just other people to hang out with. One area that seems to be slowing is mass-market services that handle thousands of names with little attention to prescreening.

Freelance photographer Jessica Boone has been using Match.com for two months and said the service has resulted in four or five dates. "I'm having fun doing it," said Boone, noting that she is satisfied with the kinds of men she is meeting. "I've made some friends and I'm meeting their friends."

But Boone says that online dating involves time. "It's almost like a job." And since joining Match.com, she finds herself spending more time dating men she's met in the real world, which could leave the online services minus one customer.

Meanwhile, alternative approaches are gaining ground, such as social networking sites including FriendFinder.com, which offers potential connections in chat rooms or through Voice Over Internet protocol technology. Another approach: text-messaging that provides flirting possibilities within a close distance.

"While growth may be slowing in dating for the critical age groups of 25 to 34 and 35 to 44, there is future growth in the 18 to 24 and senior categories," said Bill Tancer, Hitwise's vice president of research. "Those demographics haven't been as likely to visit those sites in the past. They're just now catching on."

For all services, perpetual churn can be a problem--and an opportunity. "It's a serial business," said David Siminoff, who was recently named president of MatchNet. "If there's churn, the odds are they're dating someone. And if they're dating someone and they marry that person, they'll tell everyone they met on AmericanSingles. We're happy to lose customers that way."

MatchNet, the No. 2 online personals site in October, has gone through its own makeover this year, eliminating 40 positions and withdrawing plans for an initial public offering in the United States, citing a faltering market for Internet-related IPOs. (Its stock currently trades on the Frankfurt exchange.) Siminoff replaced Todd Tappin, who resigned as president and chief executive after only six months on the job. MatchNet also has hired a new chief technology officer, chief financial officer, chief marketing officer and chief communications officer.

"The strategy of the company changed," said Siminoff. "The board reconsidered where the sweet spot of growth and profitability was and reoriented the areas in which we invest money, time, efforts, etc."

Industry layoffs

That includes generating more revenue. MatchNet has 10 million active members, which it defines as those who have posted a profile or logged onto any of its sites within the last 12 months. But only 235,000 members were paid subscribers as of Sept. 30.

MatchNet had a third-quarter net loss of $3 million, compared with a net loss of $2.7 million for the like period a year earlier. Revenues rose 74 percent, to $17.1 million.

In September, Dallas-based Match.com, an operating business of Barry Diller's IAC/InterActiveCorp., cut about 30 employees, or 10 percent of its workforce, and replaced Chief Executive Tim Sullivan with AT&T Wireless executive Jim Safka. Profits fell 37 percent in the third quarter to $2.8 million, and sales increased just 3 percent to $49.7 million, compared with 44 percent growth in the like period a year earlier. True.com another online service in Irving, Texas, recently cut 90 employees, or more than 60 percent of its staff.

But privately held eHarmony, which has its members fill out a detailed questionnaire that goes beyond the basics of looks and interests, appears to be holding its own. It had 5.3 percent market share in November, compared with 4.4 percent a year earlier, and was the fifth most-visited dating site in October. In May, eHarmony announced it had quadrupled in size over the last year to 4 million members. It now has more than 5 million.

"The category is starting to take notice of what eHarmony is doing," explained Chief Executive Greg Forgatch, who said the company has been profitable for the last 2 1/2 years. He noted that eHarmony employs a "tough love" approach, saying that photos, job descriptions and the like provide only superficial clues to compatibility.

Yahoo Personals, looking to cut into eHarmony's slightly older, more affluent subscriber base, last month introduced a premium service called Personals Premier that uses matching technology based on personality tests. The service costs $34.95 per month, compared with $19.95 for its regular package. EHarmony charges $49.95. (MatchNet charges $24.95 for AmericanSingles and $34.95 for JDate.)

"There are hundreds of dating services popping up, trying to find angles to appeal to age, ethnicity, social preferences of various types," said Forgatch. But to become a major player, he added, "it still takes a large number of people."

Match Game

Yahoo, e Harmony have increased market share.

                         Nov.      Nov.      Pct.
Site                     2004      2003      Chg.

Yahoo Personals         19.6%     18.4%       6.5%
Match.com                7.6      11.3      -32.8
AmericanSingles.com      7.1      10.7      -33.7
eHarmony                 5.3       4.4       20.5
Friendster               3.9       6.4      -39.1

Source: Hitwise Inc.