I haven’t read the others comments yet, so excuse me if this is redundant. Being from Nashville I had never heard of SoulCycle. Once arriving at HBS I saw the cult-like love that people have for SoulCycle that I frankly found irrational. I struggled to see the value proposition, as it’s $34 for what I assume is like a one-hour fitness class. That’s about $100 a week if you want to exercise for 3 hours, or about $5000 in a year. That’s well over 10x most annual gym memberships, even in cities like NYC and LA. After reading this article, I still find the love or this to be an irrational one. However, I think it’s found success in high density markets such as NYC and LA since it doesn’t take much market penetration in order to gain a significant amount of volume. For that reason, I’m concerned about their ability to scale outside of major metropolitan markets.
This is a great read, it’s interesting to see the cultural differences and how they affect Uber’s ability to execute its value prop using its operation current operational model versus Careem. I think that Careem is willing to operate in such a way that would be very painful for Uber to adapt to- the customer call center for booking, the captain call center for interactions between the drivers and riders, and the pay with cash. These adaptions also seem to be rather expensive compared to Uber’s leaner model, I’m curious as to how profitable this model can be with the higher costs associated with operating in this environment?
I love this company’s operation model. The small menu reminds me of our first case with the hibachi grill, and their change up of customer flow reminds me of some of the improvements IDEO made with the movie theater. I’m curious as to how they are priced compared to a regular fast food restaurant? And I’m wondering if they plan on becoming a chain, how they can manage their brand quality with so many factors that seem to be very location dependent, including menu items.
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 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.
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.
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 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.
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.
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
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.