Hot or Not Goes Free

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.

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