Tinder’s Business and Operating Models #ItsAMatch!
Tinder’s business model and operating model both swiped right, creating a power couple that drives high level performance
Introduction
Tinder is a relatively new company that has thus far proven to be highly effective in driving alignment between its business and operating models.
Tinder provides a digital platform that “empowers users around the world to create new connections that otherwise might have never been possible.” Although there were plenty of quality platforms to help facilitate communication with people we already know before Tinder, the platforms for meeting new people were largely online dating sites that require the user feel out cumbersome profiles and questionnaires and utilized robust algorithms to aid users in the matching process.
Tinder’s Business Model
Tinder entered the scene in September 2012 with a mobile app that provides value to its users by removing the burdensome signup process of existing platforms, as well as putting the match making power in the user’s control with a simple and streamline interface.
Users easily signup for a free profile through Facebook, which provides a layer of security from people who try to lie about who they are. Users then select a few pictures from Facebook to be shown on their profile, enter their gender and age, and input a few match making preferences.
Using the Tinder app is similarly straightforward. Tinder displays a profile picture of an individual that matches your preferences. You can tap into the profile to see more information, and if you’re interested in connecting with individual you swipe right, if not you swipe left. All swipes are anonymous unless two users both swipe right on each other (It’s a Match!). Once matched you will be able to chat with the user drive the relationship in a way you want from there.
Tinder captures this value in the form of Tinder Plus, its paid service which launched in March 2015. With Tinder Plus users get features such as unlimited right swipes, the ability to choose the location of match searching called “Passport,” and the ability to go back to a previous profile and swipe right instead of left called “Rewind.” Tinder Plus costs $19.99 for users over 28 and $9.99 per month for users 28 and under.
Tinder also captures value in the form of advertisement revenue beginning in April 2015 in the form of a user landing on the advertisers profile while swiping. The user can immediately swipe left or right on the ad or watch the ad and click on links within the ad for more information. Tinder further collects the ad swiping data to provide back to the company.
An Aligning Operating Model
Tinder has several key tasks it must execute on to properly fulfill its value proposition and capture a portion of the value created:
- Drive user adoption and engagement
- Maintain a stable, functioning, and accessible mobile application
- Evolve the app functionality to meet changing user demands
Tinder has to have the capacity to maintain an app with a rapidly growing user base and unpredictably variable bug issues, the talent to be innovative with product development, and the structure and culture to be fast-moving in response to consumer demands.
From its West Hollywood, California headquarters, Tinder has a modest 60 employees. With such a small employee base, Tinder avoids the need to have slow bureaucratic processes and maintains its capability to rapidly respond to consumer demands. Furthermore, employees have unlimited vacation and flexible working hours, allowing employees to work more when high priority issues need a swift resolution and less when things are status quo.
Tinder organizes its employees into functional positions to ensure that the critical functions of maintaining an app are accounted for, but uses culture and the office layout to maintain the flexibility of inter-functional collaboration and teamwork that drives unique product development. The culture set forth at Tinder is once of “fearless transparency and diverse voices.” Every employee at Tinder is to be accessible to one another to foster rapid information sharing and collaboration that leads to improved decision making and innovation. This is further highlighted through the open-plan office layout with moveable furniture and an environment notable for food, music, beer and wine on tap, and a ping-pong table.
Tinder focuses its operations on both maintaining the present service delivery to its users, while also planning for the future growth. This planning includes building out its internal IT system, migrating from cloud services to bare metal infrastructures, and automating certain processes. All of which is critical to continuing their rapid growth.
To attract the top talent in software engineering, hardware engineering, and data analytics for executing its critical tasks, Tinder provides the desired technical challenges and growth potential inherent in an early startup while compensating with competitive salaries and benefits. Tinder then retains the talent through providing equity to employees and fostering a strong community through daily catered lunches, yoga classes, happy hours and more.
Performance
Tinder’s performance has been quite impressive, in just three years it has become a global cultural phenomenon, operating in 196 countries with an estimated 24 million users. It is able to process 1.4 billion swipes per day, and has accumulated over 9 billion matches. The user experience remains high quality with an app rating of 4.5/5. The user base continues to growth at a rapid rate, and there are an estimated 500,000 paid subscribers which leads investors to value Tinder at over $1.3 billion (some as high as 3$ billion).
References:
http://techcrunch.com/2014/08/03/tinder-is-going-to-the-dogs-with-nyc-puppy-rescue-project/
http://techcrunch.com/2015/04/03/tinders-first-advertisement-is-one-big-experiment/#.4w9rjql:O85t
http://lifehacker.com/five-best-online-dating-sites-1594072317
http://www.inc.com/issie-lapowsky/how-tinder-is-winning-the-mobile-dating-wars.html
https://opsmgt.edublogs.org/2014/10/28/tinder-love-at-first-swipe/
https://www.questia.com/newspaper/1P2-38015263/iac-embraces-dating-sites-despite-online-crush
http://www.businessinsider.com/all-eyes-are-on-tinder-2015-7
http://techcrunch.com/2015/06/09/tinder-goes-through-a-small-round-of-layoffs/#.4w9rjql:cngl
http://www.businessofapps.com/tinder-mobile-app-statistics-and-revenue/
http://www.latimes.com/business/technology/la-fi-tn-tinder-plus-20141106-story.html
http://theodysseyonline.com/stonehill/newbies-guide-to-tinder/185817
Interesting post! Really like how you concisely summarized Tinder’s business model, and how they started with a free model to form a critical mass of core users, and then launch the Plus features to capture the value created. However, I think the highlights of the operating model can be more Tinder-specific. Right now the operating model’s features (e.g. talent and org management, IT infrastructure design, etc) can be applied to most of the internet start-ups. Instead, I think Tinder faces some unique challenges to be address at the operations level. For example, how do they continue to attract core users beyond organic growth, how do they deal with potential reported sexual harassment cases, how do they measure customer satisfaction?
Thanks for your interest CY!
I agree that the operating model can be applied to many tech start ups, however, most tech start ups apply the model indiscriminate of how it aligns with their core business model. Alas, the practical struggles of an 800 word limit prevented me from going too deep on any particular operational segment.
I do have to push back with the operational challenges you present. I’d say as a 3 year old tech start up with 60 employees and 25 million users that is still experiencing increasingly rapid organic growth, Tinder’s operational model should be almost completely focused and aligned with continued organic growth. Tinder only has around 500,000 paid users and a small market share in a $2 billion market that is has experienced over 3% growth per annum since 2008. Tinder needs to execute on maintaining its apps quality and expanding the its ability to scale. I think several years down the road, once the organic growth shows signs of slowing, is the more appropriate time to align the operating model with more inorganic growth.
I’m not quite sure which sexual harassment cases you’re referring too. In regards to the Whitney Wolfe vs Justin Mateen, while damning to the perpetrators, I don’t think this is an ongoing issue, nor has it amounted to anything substantial from a business perspective. It’s been settled out of court for about $1 million (a trivial one time sum of money given the projected earnings of Tinder). The situation had little to no effect on the business model and operational model. Lastly, the business continued to perform better than expected with continued the user and revenue growth.
I touched on consumer satisfaction some: the high app rating and rapidly growing user base. But I’d say given their value prop and monetization methods, their most salient measure is how many active users do they have, and how many subscribers are paying for their premium services. I think Apple has shown that a tech company can do quite well for itself measuring customer satisfaction primarily on how consumers spend their dollar.
Having been with the same person for over 7 years, I have never used Tinder or other dating apps. However, I’ve always been curious about how they have become so popular. Tinder specifically has taken off and I believe outside of demand for the product, their simple design has been a key to their success. Combine this design with the ease of creating a profile, and I can see why they have such a great adoption rate.
I think they have a huge opportunity to partner with other businesses relating to dating. For example, they could work with 1-800-FLOWERS to offer promotions to buy flowers once two users have matched. Or work with local restaurants to offer suggestions on where to meet. These opportunities could really help scale their revenue stream and overall valuation.
I haven’t thought about that but I agree, there’s some real potential for revenue growth with partnering with companies outside of advertising. I noticed both Uber and Lyft have been doing partnerships more recently. One example is the Bieber album download with a ride of over $5
Justin,
Very interesting read. Think Tinder definitely had some counter-intuitive thinking with the matching process of making it super simple rather than using the complex matching and information algorithms that other dating websites use. I think the premise that there is a need for physical attraction and that everything else will come through conversation / actually meeting is a unique approach to figuring out the whole “dating scene”. Would be interested in the actual success rate of Tinder in driving real relationships vs. these other websites that have more fully quantified compatibility. I guess this leads to the existential question of whether complex human emotion can really be quantified and analyzed or whether there is something “special” about love which no amount of math, data or analysis can really fully understand
More on the business model – my key concern is how this is really going to generate a substantial amount of revenue. The application is very thin in its functionality and its only real barrier to entry is the network effect of a lot of people being on Tinder. I think this is probably relatively weak as there is nothing to keep from having multiple dating apps and I feel at some point the allure of Tinder will likely go away. Even if it doesn’t, I’m not sure how much value there is in advertising on Tinder for advertisers nor how much you can really monetize the user base (do you know anybody that pays for a premium Tinder subscription? I certainly don’t).
After reading this post, I could see a lot of merits to Tinder’s operating model. In terms of the business model, I believe they do a great job of creating value for users, however I question their ability to capture value, similar to Kevin’s last point. As someone who has used the application myself, I do not believe it is an effective vehicle to deliver advertising. Ads are clearly differentiated from normal matches and are dismissed within less than a second through the swiping functionality, barely making an impact on the user. Similarly, the subscriptions provide very limited features at a higher price compared to many other dating apps and sites. For example, for the same $9.99 price that users under 28 pay, you can purchase a subscription to OK Cupid that includes a host of other features not available on Tinder. Also, Tinder is seen as a less serious way of finding dates and includes many people just looking for a hookup rather than a serious relationship. I question whether anyone will be willing to pay for premium features when they either (a) don’t take the process seriously, or (b) take it seriously and recognize that there are a host of competitors that offer a clearer value proposition and ROI.
I’d give a little push back on how low the barrier of entry is for an application like Tinder. Although it’s simple in usage, it has several features that will definitely raise the cost of both developing and maintaining the app- it’s on both iOS and Android, has database infrastructure, and robust social media integration. I think there’s a misconception that developing and maintaining a well functioning (and liked) application is relatively easy, but several very capable companies have tried and failed miserably despite having predecessors to mimics and a large talent pool- Google hangouts, Apple Maps, Poke by Facebook.
An app like Tinder takes several talented software engineers to develop the code each making $80-150k salary, plus an playing for a massive amount of server space (likely in the neighborhood of $300,000/month), and more software and hardware engineers as to maintain the app as it grows it’s user base. All this with no guarantee the new app will be as good from a functional standpoint as Tinder, or will be able to capture a sizeable market share. I think there’s limited room for massively successful apps in the space, similarly to how there are only a few dominant social media sites these days.
On the monetization side, although a small percentage of there users currently pay, when your userbase is 25 million and rapidly growing you only need a small percentage of people willing to pay. Right now with an estimated 500,000 subscribers, that’s just 2% of there user-base but at least $5M in revenue each month. With their user-base growth not showing signs of slowing down currently, I think there in good standing there. As far as the ad revenues, I think they are just beginning to explore creative way to advertise on the app without detracting from the user experience. And as we saw with FB and Google cases, there’s something to be said about what companies can do with vasts amounts of data.
Hey Justin. Thanks for the post! great points here.
As a non-user of dating apps, something i can’t struggle with is how multiple dating apps have come to co-exist. Intuitively, i’d expect a monopoly / duopoly in this market, given how similar it is to social networks (where FB has emerged as the sole leader for most of the world).. but here we have several apps thriving. Is it that Hinge, Tinder, OK Cupid have different brands / value propositions? Is there something in their operating model that differentiates them from the rest? Or should we expect some consolidation going forward?
I think there will be some degree of consolidation going forward (actually we’re already seeing some of that- IAC owns majority stakes in both Tinder and OKCupid), but I also think their are different value propositions being offered. On the spectrum of user involvement/complexity of use we have Tinder on the low end, OKCupid on the higher end, and Hinge on the middle spectrum. I think its reasonable that one consumer may prefer different levels of involvement/complexity depending on his or her mood at a particular time. Just like people typically have a Facebook, Instagram, Twitter and Snapchat accounts.
Really enjoyed your choice of company and your post. In response to your comments on the business model, I do think there is significant value add to users in the simplicity of the overall app interface. However, I think that Tinder could potentially be sacrificing other benefits/additional value add to customers in order to provide this simplicity. For example, I wonder if Tinder could incorporate (perhaps to a lesser extent than traditional dating websites) matching algorithms and short questionnaires in order to provide users a more targeted menu of potential “matches”. Without complicating the overall interface of the app, small changes could potentially increase the overall effectiveness of the matching process and increase user satisfaction. In addition, other than the simple interface, Tinder does not appear to provide any additional benefits that result in meaningful competitive advantages compared to other dating apps/websites. If Tinder could somehow combine the simplicity of the user experience with a more robust matching process, it would be very well positioned to further increase customer adoption and retention.
I didn’t touch on this too much due to the word limit, but Tinder is actually doing just that. They have a matching algorithm for delivering recommendations and does work on continuously improving the quality of its recommendations to add more value to the user- they actually just updated the algorithm this past week. They stop short of having a short questionnaire, but I think the tradeoff of maintaining its simplicity is worth it.
I enjoyed this post. Like Keyur, I have never been able to use Tinder or any related “swipe-style” dating apps and thus have found them fascinating from afar. I’m curious to see how Tinder tackles two issues: monetization and scale. As many of the above comments have mentioned, it seems like ads and premium services would deter users and take away from Tinder’s streamlined interface and value proposition based on simplicity.
In terms of scale, Tinder seems to face many of the issues Facebook deals with. Primarily, what happens to the core user base of young people as Tinder becomes more mainstream? Will it be fully adopted by all segments (maybe I’m just hopeful that people my parents’ age are less superficial!)? More importantly, while Tinder may have reached critical mass, it does appear that newer competitors such as Bumble are already taking share.
I’ll let you keep believing that superficiality is limited to young people, but aside from that I think they still have plenty of growth left even in their core user age. Facebook has over 1 billion active users compared to Tinder’s ~25 million. Even smaller networks such as linkedin has 100 million active users. So I think Tinder is okay with just focusing on organic growth within its core user base for some years to come.
As far as competitors, I’ll mirror what I said in response to Adwaita’s post- “On the spectrum of user involvement/complexity of use we have Tinder on the low end, OKCupid on the higher end, and Hinge on the middle spectrum. I think its reasonable that one consumer may prefer different levels of involvement/complexity depending on his or her mood at a particular time. Just like people typically have a Facebook, Instagram, Twitter and Snapchat accounts.”
This has proven to be a steadily growing recession-proof market, so I think there’s room for Tinder to still have highly impressive growth even with some competitors co-attracting users.
Quite interesting, especially since Tinder seems to be benefiting from a first-mover advantage. Given the attractive market segment of match-making, which of Tinder’s operating features do you think will allow it to maintain a competitive advantage as it faces new competitors. Do you think a lot of the characteristics you mentioned (i.e. open space, moveable chairs) are replicable by other start-ups? Also, do you think there is much room for innovation in this space?
I think Tinder’s growing user base (having a network already at a mass that provides value) and its well functioning app (see my reply to K. Wei for more details on why I think this is a bigger benefit then most people give credit for) are its main advantages. I feel the operational characteristics are replicable to an extent, but I’m not sure firms can easily develop a similar app and have such massive adoption in usage in a way that will take away from Tinder.
Great post Justin! Tinder is truly an innovative startup, and their model is disrupting multiple industries (Tinder for X, Y, Z). I’ve 2 questions on their model:
a) Monetization – Is it possible to monetize the Tinder user base effectively? Is advertisement or subscription the right model? Also, is the Tinder user-base sticky enough? (we know that both advertisement and subscription work best when the user is sticky so we have more data points on him/her).
b) Should Tinder extend its product to offer more advanced dating products – like setting up coffee chats? or organizing monthly Tinder events locally in every city where the tinder community networks? Would this make Tinder more effective at delivering user value?
Thanks Kartik, glad you enjoyed the read!
a) I think on the subscription side, the monetization works very well given the size of its user-base. Only a small percentage of their overall users will have to subscribe to experience significant revenue generation. As far as the ads, I think they are just getting started on ways to work with firms on delivering ads. I think that as they amass more user data and work more closely with firms, they will find innovative ways to create and capture advertising value. I’m not sure if the advertising will be its dominant form of revenue like it is for Facebook and Google, but I think there’s still potential there.
b) I think that there are already products that offer these services, and Tinder’s value prop is that it puts more power back into the users hands with it’s simple design and offerings. I don’t think people want to use Tinder to organize coffee chats, just like I don’t think people want to use Snapchat for organizing events.
I wonder how sustainable this business is given that its business model does not host anything proprietary it. Bumble for me has done a much more effective job in terms of quality responses as it changed its operating model to entice the woman to reach out first. How will it manage quality as it grows so rapidly? Great business but for me, its value faded in 1 day of using another app and I never once paid them for the value they provided. I’m excited to see how they will respond in capturing value.