Word that IAC reportedly spent $500 million to buy another 10 percent stake in Tinder, the popular dating app, was met by most of the tech world with a healthy dose of skepticism. After all, could a site that's just 20 months old with no revenue model to speak of really be worth $5 billion?
The answer, of course, was no. Shortly after Bloomberg reported the story Friday, Sam Yagan, CEO of IAC's Match Group, which includes IAC's online dating companies, told Forbes that while he could confirm a deal was made, "this valuation is nowhere near the truth." Tinder, for its part, has declined to comment.
To be sure, $5 billion is an insane number. According to the market research company IBISWorld, the entire online dating industry is just $2 billion. In order to be worth more than the entire industry and then some, Tinder would have to do a whole lot more than give its dating app away for free. But the suggestion that Tinder isn't worth anything because it has no revenue model, is just as far off base. Tinder, with its 10 million active daily users, is fundamentally changing the way that a massive number of people behave, and as a result, it's probably worth a whole lot more than you think.
Full disclosure: I met my boyfriend on Tinder. But while you might think that colors my view of the situation, it also gives me unique insight into where Tinder succeeds and other dating sites fail. It starts with effort. Tinder requires next to none. Sign up with your Facebook account, look through other users' photos, swipe right if you think someone's cute, and left if you don't. If you both swipe right, congratulations! You can start chatting. If you don't, no harm. The other party never got notified that you expressed interest, anyway. In other words, Tinder eliminates the fear of rejection.
"Tinder's really doing something that has been the Holy Grail for online dating: it becomes fun," says Mark Brooks, a consultant to the Internet dating industry.
Other sites like OKCupid and Match.com have never been able to hack the rejection problem. They haven't simplified the process much, either, still prompting users to fill out those long and antiquated dating surveys. The process is a drag. Rejection is disappointing. And the fact that you're doing it anyway only plays into the lonely stereotype that the online dating industry has had such a tough time shrugging off.
Tinder has made the difficult process of meeting a total stranger seamless, exciting, and perhaps most importantly, mainstream. It's not uncool to scroll through Tinder with friends, and your non-single friends are all dying to "play" for you. It may be the first dating technology that people in relationships actually wish they needed.
It's also important to remember that the app has a stellar user interface. It takes sophisticated technology to make something so simple. If IAC sees use cases for that technology in some of its other companies, that makes Tinder an even more precious asset.
So the fact that IAC would dedicate a sizable chunk of money to keep Tinder close, revenue or no revenue, is not all that surprising. Match.com, Brooks notes, has reached a point at which it can only really grow through acquisition or by targeting audiences that would never join dating sites to begin with. Tinder users, many of whom would scoff at "real" online dating, are one such audience.
"IAC's not valuing Tinder based on what it's worth. They're valuing it based on what they'll lose if they don't own it," says Brooks. "If Tinder can own mobile and own the younger demographic, then IAC is owning the future with Tinder. It's an international phenomenon."
