With marketplace businesses, you want to make entry and exit as efficient as possible. Putting up a pay wall is the exact opposite of what you should be doing

Question: When you give away your product, how do you make money?

Sam Yagan:  OKCupid’s model is almost entirely based on advertising, which is the way most online media is monetized these days, whether it’s the news or whether it’s sports and we think online dating is going to evolve in the exact same way.  In fact, we think that the paid subscription model is somewhat antiquated and doesn’t really flow with what the people on the Web, especially young people on the Web, are expecting from a media property.

I think for marketplace businesses, and when you think about online dating, it’s not a social network.  It’s not a place where you go to talk to people you already know, it’s a place you go to interact with someone you’ve never met before.  And so when you think about the marketplace businesses and what makes an efficient marketplace, you want to make entry and exit into that marketplace as efficient as possible. 

So putting up a pay wall and keeping people out of your marketplace is the exact opposite of what you should be doing.  The sort of the most efficient way for online dating marketplace to evolve, and in fact, any marketplace to evolve is to have one really big market where people can enter and exit as they please, where people have really advanced search, sort, and filtering technology.  Look at classifieds, look at auctions in each of those industries you’ve got eBay, you’ve got Craig’s List that have dominated the entire vertical and they’ve done so by making their marketplace as efficient as possible. 

In an ideal world, we would charge people a $10,000 success fee when they get married, or a $5,000 success fee if they enter into a relationship with someone. Unfortunately, that’s a little bit hard to track although someday maybe we’ll get around to that.  So yeah, we do have that challenge, but there is no financial transaction that we’re in the middle of.  So in the monetization sense, we’re like any other media property. 

However, we can collect a disproportionate amount of data.  We can ask our users questions in the name of getting them a better date that practically no other property could ask.  We can as about people’s smoking preferences, we could ask about how many hours of video games you play.  We can ask whether you want to have kids.  We can ask all kinds of questions about your personal life and your consumption habits and your preferences that you would not tell to any other site on the Web, but that you’ll gladly tell us in exchange for better dates.

What we have found is that users understand the kind of quid pro quo at OkCupid, which is that if you give us data, we give you dates—and, oh by the way, we’re going to show you some more relevant ads at the same time.  We’re very careful about personally identifiable information and not using anything that is inappropriate for targeting an ad.  But if we know that you like to play video games, we’re going to show you a video game ads.  And what we have found is that users actually prefer ads that are well targeted.  You know, especially in this political season, the thing that upsets people the most is seeing an ad for a candidate they don’t like.  That’s what gets people the most angry. 

So if it’s based on someone’s preferences then I would love for someone to show me a BMW ad; that would make me very happy. 

Recorded on November 4, 2010
Interviewed by Teddy Sherrill

Directed & Produced by Jonathan Fowler