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Summary:

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 […]

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, emailed us to say that the company plans to soon make its subscription-based ($6 per month) “meeting” section free to users.

Why would they kill a service that 15 percent of people who try are willing to pay for, and has resulted in “multi millions of profits per year”? Hong tells us 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.

Hong 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.

Hong 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, Hong says.

It’s not necessarily a new idea. While subscription-based online dating is still the dominant business model, we have covered free online dating sites PlentyofFish, OkCupid, and Iminlikewithyou.com. And Hong admits that they are a little late into the free ad-based game, but that “we are optimistic that it is not too late for us to change, as long as we have the courage (or insanity) to do so.”

Hong has made enough money off his site to afford to take risks. And the employee base is small enough, with no venture capital, that the company has some room to monkey with the recipe.

  1. I applaud James for making a risky move, especially with a successful service. However, simply adapting a free business model, might not be the best route to growth. Marcus Pincus, the founder of Plentyoffish – the largest free dating site – has indicated on his blog that dating sites are being cannibalized by social networks. People, especially younger people, prefer to use Facebook and Myspace for dating. In fact, Marcus has said that he’s looking to shift his business model as well.

    Fortunately, Hot or Not is unique in its approach to dating, and has passerby appeal to people who aren’t looking for a hookup. I expect it will endure when other traditional dating sites fall by the wayside.

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  2. For a dating and rating site like hot or not, to move to an ad based business model, really makes sense, its the “FUTURE”,
    I appreciate the vision of James Hong, to foresee the trends for online dating.

    I as a marketing consultant, agree that free websites are destroying the pay ones. Who would like to pay for services and facilities that are available at next door for free?
    The online ad’s sometimes create hassles for easy navigation and are not always liked by the user’s, but till the time no one has to pay for his pocket, they accept them.

    Well I wish Good Luck for James Hong, for undergoing the risk of converting their business model from subscriptions based to free-ad based one.

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  3. James also has a blog that is really interesting to read and follow:
    http://james.hotornot.com/index.html

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  4. Bret: I agree, hot or not is very unique, and will probably coast along nicely as long as they don’t mess with their basic premise.

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  5. $$ keeps out the riff raff!

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  6. Oops, in my earlier comment, I meant to reference Markus Frind as the founder of Plentyoffish.com. His comments about the future of the online dating industry can be found here:

    http://plentyoffish.wordpress.com/2007/03/14/changing-direction/

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  7. james is a smart guy, and willing to take risks. he may not figure it out right away, but give him a few tries and i bet he’ll find a workable solution. james is one of the more creative entrepreneurs i’ve met out there… and a big heart to boot.

    good luck to him :)

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  8. This is good news! In August of 2005 a girl and I “matched up,” she was moving into the area and needed someone to show her around and what-not.

    In December of 2005 we were married and we’ve been happily ever after ever since!

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  9. Yes, Free is the Future. Thanks for the insightful post.

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  10. I think AOL has really set the lead when it started shedding subscriptions and focusing more on Ad revenues. Good move for HotorNot in this very competitive marketplace. Let’s see how it does.

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