I've always admired Markus. In part, because of his ability to run a very successful business by himself, but also because I tend to enjoy rooting for the home team; I live in Vancouver.
That being said, I'm not sure where he's going with this. In many ways this seems like the beginning of the end for him. Granted, he knows his industry better than I do, but here's my take:
1. He runs a free service, at huge profit margins. His competitors all run paid services.
2. The likelihood that people would view paid dating as a luxury they can no longer afford is higher than ever.
3. He's worried about "hundreds of millions of dollars" that he's missing out on - that's usually a recipe for disaster.
If anything, I think he should stay as static as possible. The odds that much of the paid traffic from his competitors comes his way in the next little bit is extremely high. Moving to a paid site destroys the only competitive advantage he has. It's suicide.
I've seen this move before with other entrepreneurs, and I've never really seen success from it. What it usually symbolizes is that the particular niche has reached its potential, and no real innovation is required at this point. The founder is basically getting bored, and looking for new challenges. What needs to happen though is that the entrepreneur him/herself needs to leave/end the business. You can't evolve into new markets and bring your business with you without destroying the comfortable fit that your brand already has in the marketplace.
From my 2 cents, he should be looking for buyers, not trying to become one.
I think he's going to keep his current site and create another one separate from his current. Am I wrong?
Really he just wants to keep users that come to his site and aren't happy with the free type dating site. Instead of them going to match.com or w/e they'll go to his pay site.
Wouldn't it be a lot easier to call up match/cupid/eharmony and discuss referral fees for driving traffic to these sites? I think he'd be better off looking for a partner. Perhaps an exclusive deal?
What value is adding a pay site to an over saturated market bringing here? Why would you play against companies that are more resourceful and experienced using their rules? Seems to me that - long term - this is a lose/lose all around for him.
In order for this to be even remotely successful, he needs to beat the pay sites at their own game. Otherwise, his "pay site" will still be disregarded, and he'll still "lose revenue" to the big guys. The odds are stacked against him. The big guys can bear a price war much better than he can, and that's what he's jumping into, essentially.
Maybe he's tried referrals and sites like Match.com, which launched a free version, turned him down or paid too little because they want to take over the vertical too.
I'm not seeing how a referral deal would be a "one time fee" at all. In my mind, it would be recurring based on the number of click throughs or sign-ups or whatever.
He doesn't want to be an affiliate, he wants control of it all.
And my point is that this is where greed can sometimes bite you in the ass.
It would be recurring assuming he gets a certain amount of signups each month. But in month 2, he no longer gets that money from the customers - that goes straight to the other company.
He may get a one-off payout of $100 or so per signup, but if he had his own service he would continue to make money from the original signups while gaining new ones each month.
a good traffic deal pays based on the turnover generated at the destination site, I'd definitely pass on a 'one time fee' per signup, unless it is very substantial.
I think when he says "by sending people to competitors sites." he's suggesting that he already gets referral fees (why else would he send them?). I think watching the referral fees roll in makes him think - "these people are willing to pay x to get my customers, therefore they must be making y >> x." He may be wrong.
That being said, I'm not sure where he's going with this. In many ways this seems like the beginning of the end for him. Granted, he knows his industry better than I do, but here's my take:
1. He runs a free service, at huge profit margins. His competitors all run paid services.
2. The likelihood that people would view paid dating as a luxury they can no longer afford is higher than ever.
3. He's worried about "hundreds of millions of dollars" that he's missing out on - that's usually a recipe for disaster.
If anything, I think he should stay as static as possible. The odds that much of the paid traffic from his competitors comes his way in the next little bit is extremely high. Moving to a paid site destroys the only competitive advantage he has. It's suicide.
I've seen this move before with other entrepreneurs, and I've never really seen success from it. What it usually symbolizes is that the particular niche has reached its potential, and no real innovation is required at this point. The founder is basically getting bored, and looking for new challenges. What needs to happen though is that the entrepreneur him/herself needs to leave/end the business. You can't evolve into new markets and bring your business with you without destroying the comfortable fit that your brand already has in the marketplace.
From my 2 cents, he should be looking for buyers, not trying to become one.