Eharmony Examination

Topics: Online dating service, EHarmony, The Network Pages: 7 (2619 words) Published: April 27, 2010
What kind of a platform business is the online personals market? What kind of network effects (direct, cross-sided, positive, and negative) does it leverage? How structurally attractive is it? The online personals market is a specific niche of social networking, and it is a sole-sponsor, proprietary platform business. In terms of network effects, it could be seen as a one-sided network (users can instigate an interaction, or can have someone else instigate an interaction with them), but is better described as a two-sided market with men on one side, and women on the other (with the exception of homosexual sites which are clearly one-sided markets). Within this, there are both direct and cross-sided network effects. For direct, there are small positive effects (as a man, you want enough men on your side to attract women on the other side), but primarily negative effects (the more people on your side, the more competition you will have finding a match). For cross-sided, there are positive effects (the more of the opposite sex there are, the more likely you will find a match), and negative effects (if there are too many people on the other side, it may be hard to search through the noise to find an actual match—not to mention that there can be liars, frauds, and other undesirable people on the other side of the network). To examine the attractiveness of the industry structure, a five forces analysis will offer us insight. First, we can consider buyers’ power. In this case buyers (prospective daters) do have some power in that there are a plethora of other options online (from Match to free sites), as well as any number of venues in the real world. However, since they are individual consumers, they do not have scale power and must accept prices. Further, there is an overall opinion that meeting the right person is very hard, and thus there is a significant willingness to pay for a quality service. Second, looking at the competitiveness of rivals, it is clear that there is a significant amount of competition (though concentrated within a few main players). Match is trying to copy eHarmony with Chemistry, and they have been increasing spend on advertising. Yahoo! also boasts a strong installed base that they can funnel into their Personals site. In addition, free sites keep everyone in check in terms of the amount they can charge. Nevertheless, the main players have demonstrated price discipline, as prices have remained steady or even risen (in the case of the competition). Third, the threat of new entrants is low / moderate. There are a hundreds of niche sites starting up every year, but for the most part, the built-in network effects of the three main players, as well as multi-homing costs, have kept the three leaders consistent over the years, and each year the vast majority of new sites fail. The biggest threat would be for a behemoth like Facebook to activate its users on a proprietary site, but so far this has not materialized for a number of reasons. Fourth, the threat of substitutes is always present. In addition to the numerous ways that people can meet partners in the real world, there are also real world match services that pre-date the internet (as well as the threat of new technology and innovations changing everything). However, for the time being, online personal sites are clearly the most efficient and affordable option for the masses. And lastly, there is really no bargaining power of suppliers. eHarmony controls all of its inputs. Thus, the sum of these parts leads to a pretty attractive industry. It is not a winner-take-all market (multi-homing costs, while present, are not overwhelming, and the case mentions that many people are members of multiple dating sites), but the significantly strong network effects and stability of a few main players lead this to be a profitable industry ( primarily for the incumbent leaders). What is eHarmony's competitive advantage? What differentiates it from...
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