Eharmony Examination

What kind of a platform business is the online individualizeds market? What kind of profits individualised do (direct, cross-sided, positive, and negative) does it leverage? How structur altogethery root forive is it? The online personals market is a proper(postnominal) niche of favorable nedeucerking, and it is a sole-sponsor, proprietary platform business.In terms of profit cause, it could be seen as a one-sided communicate (users fuel instigate an fundamental interaction, or can pee someone else instigate an interaction with them), but is bump described as a two-sided market with manpower on one side, and women on the different (with the exception of homosexual sites which argon clearly one-sided markets). Within this, in that location are both direct and cross-sided network effects. For direct, in that location are small positive effects (as a man, you destiny enough men on your side to attract women on the a nonher(prenominal) side), but primarily negative effects (the more than people on your side, the more rival you exit prepare controling a match).For cross-sided, at that place are positive effects (the more of the opposite sex there are, the more likely you entrust find a match), and negative effects (if there are too m either people on the other side, it whitethorn be hard to search through the noise to find an actual match non to mention that there can be liars, frauds, and other undesirable people on the other side of the network). To understand the attractiveness of the industry structure, a five forces analysis entrust say us insight.First, we can consider buyers power. In this case buyers (prospective daters) do have some power in that there are a superfluity of other elections online (from Match to slack sites), as wagesously as any number of venues in the real world. However, since they are individual consumers, they do non have scale power and must accept prices. Further, there is an boilersuit opinion that encountering the right person is very hard, and thus there is a significant willness 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 of import players). Match is exhausting to copy eHarmony with interpersonal chemistry, and they have been increasing spend on advertising. rube too boasts a strong installed base that they can funnel into their Personals site. In addition, free sites happen all(prenominal)one in check in terms of the amount they can charge. Nevertheless, the main players have demonstrated price discipline, as prices have remained beauty or even risen (in the case of the competition).Third, the threat of bran-new entrants is scummy / moderate. There are a hundreds of niche sites starting up every year, but for the roughly part, the built-in network effects of the three main players, as well as multi-homing be, have kept the th ree leading consistent everyplace the days, 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-off this has not materialized for a number of reasons.Fourth, the threat of substitutes is al shipway present. In addition to the numerous ways that people can meet partners in the real world, there are as well as real world match services that pre-date the internet (as well as the threat of new technology and innovations changing everything). However, for the term 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 split leads to a pretty attractive industry. It is not a winner-take-all market (multi-homing costs, art object present, are not overwhelming, and the case mentions that many people are members of five-fold dating sites), but the significantly strong network effects and motionlessness of a few main players lead this to be a advantageous industry ( primarily for the incumbent leaders). What is eHarmonys competitive advantage? What differentiates it from its competitors? How does the company fashion value?What is the value proposition to the node? What kind of customer eudaemonias the most? Can we calculate the companys competitive advantage by relying on the equating of willingness to pay minus cost, as discussed in the Google versus Microsoft session? Is the competitive advantage sustainable? The main competitive advantages of eHarmony are in its talent to invite high quality customers (which is the really the growth they are offering), and more dead-on(prenominal) matches with superior ensuing relationships.Just as Googles look and repeated adjustments give it an advantage in offering more relevant searches, eHarmonys research department has formd a match algorithmic rule that greatly outperforms the results of its competitors (and arguably the traditional methods of meeting, as well). Further, their long sign setup process services to self-select lone(prenominal) the most serious of consumers, which leads to an change magnitude WTP of everyone who makes it through (and additionally, this has led to more women than men signing upan extraordinary feat since women have been the hardest customers to acquire in the online dating world).The company differs from its competitors in its guided matchmaking (though Match has late time-tested to copy this). Rather than allowing free range for the users to search through the database of electromotive force difference mates, eHarmony first weeds out the non-serious and non-desirable applicants with its extensive questionnaire, and wherefore uses its patented algorithm to find the best emf match. It takes this even save by thusly scrutinizing each potential match with additional quest ions before an actual interaction can begin, and this has ensured a much more accurate product than its competitors.The company creates value by doing a lot of the work for its clients. While the initial time investment (45 minutes) may be longer than the traditional model, it and then provides the service of searching through the millions of potential matches. This not only proves to be a more accurate way to find dates, but also saves a great deal of time (where most online daters spend a 7 times as much time searching for a partner as they do interacting). And for men, who are usually fighting over a scarcity of women, they benefit from the majority percentage of women who have fit the upshot of eHarmonys paid customers.Thus the value proposition for the customer is better matches (and better quality people) with a much smaller time commitment. The customers who benefit most from this are people who are serious close to decision a person for a long-term relationship (rather t han those who are just browsing, or hoping to have flings with as many people as possible). With eHarmonys superior product, we can calculate that their competitive advantage? (WTP-Cost)eHarmony (WTP-Cost)Chemistry.In this case, eHarmonys average price (of the four options) is $37. 45 versus $34. 14 for Chemistry, demonstrating the attachd WTP of their customers. Further, their advertising strategy (avoiding costly broadcast networks in favor of more cost-effective national cable buys) has helped to keep costs down significantly in comparison to its rivals. By earning up network effects and switching costs (including termination fees and amount of time / information invested in their platform), this can be a sustainable advantage.But as with all social media, creating insurmountable switching costs is never really possible, and there is always a risk of new competitors or a game-changing scientific shift. And the uber-popularity of sites like Facebook pose a significant threat, a s they could integrate a sophisticated dating platform into their current offering, and instantly have hundreds of millions of potential customers at their fingertips. How much of a threat is Chemistry to eHarmony? How could Chemistry choke eHarmonys network effects (direct and cross-sided)?As with Googles search versus Bing, eHarmony is in a very advantaged and enviable position versus Matchs Chemistry offering. The eHarmony product is clearly superior, with the eHarmony benefitting from years of learning and tweaking their algorithm (again, similar to Googles position). Further, their top executive to point to the number of supremacyful relationships they have continues to grow, and thus holds the virtuous mickle by attracting new customers. That said, Chemistry cannot be taken lightly.Match comes in with the deep pockets of IAC, and the ability to match any investment that eHarmony makesand we have seen this recently with their increased marketing spend. As a latecomer, Chem istry comes in with the benefit of being able to ride on eHarmonys coattails, learning from their success and mistakes and copying their offering. Further, most of what eHarmony offers while sophisticated, is not inimitable. In terms of ways that eHarmony can chequer eHarmonys network effects, they can certainly subsidize some of the switching costs (leave eHarmony and your first month or two are free).Since women are the hardest customers to attract (and wherever they go, the men will follow), they could selectively subsidize the womene. g. women pay half price, and once they have built up a vast network of women, they would be able to charge a premium for the male customers. They could also beef up their offering so that they not only cover meeting people, but weddings, having children, and other stages of spirit that would enable them to extend their customers hearttimes (as eHarmony has considered).Another potential idea would be to create a network of niche sites all under the Chemistry waft where there would be sub-sites focused on a number of specific niches (based on livingstyle, religion, sexuality, etc. ) and allow people to join the main site, prescribed one or two of the niche sub-sites for free. However, most importantly Chemistry needs to dramatically improve its matching competency. As a latecomer facing a dominant incumbent, it has to offer better results than eHarmony if its going to break the network effects and challenge for the top position in the market.That is not an easy task to accomplish, and it will cost a lot in research (to improve their matching skills), and then marketing (to let potential customers know about their improved product). Due to resource constraints (and need for strategic focus), eHarmony can only pursue one of the options how would you go about rank their relative merit? Once you have done that, choose your top-ranked option and evaluate it. To evaluate the four options on the table for eHarmony, we need to get wind their merits on a number of key dimensions.First, how does the strategy fit in terms of the companys current competencies and competitive advantage? Second, how does it serve to bolster network effects and strengthen the relationship with the current core customers? Third, how well does it address the competitive threat? And fourth, how does it position the company for time to come growth opportunities? drawframe Upon consideration of these dimensions, it is clear to me that the best option is to grow the new business of handling life transitions. This is the most encyclopaedic strategy in terms of addressing the various needs of the business.If this were a winner-take-all market, then defending the niche by rapidly increasing the number of pay members would be the correct strategy, but since multi-homing costs arent overwhelming, weve established that this is not a winner-take-all market. Expanding to medium-term relationships does offer the upside of immediate growth opportunities, but more importantly, it unravels the competitive advantage and value proposition of having top-quality, like-minded individuals who are willing to pay a premium for a better chance to meet a life partner (in some ways it is almost a different business).Lastly, geographic expansion seems perfectly poised for disaster. While it would be the best opportunity for growth in both the near- and long-term, it also goes against the competitive advantage of offering the best matches based on detailed fellowship and understanding of their consumers. To do it properly, they would not be able to transplant the companionship theyve gained in the US, but would need to start again with new research in each country they wanted to expand into which is not an efficiently scalable model. Thus that leaves us with expanding into the new business of handling life transitions.This offers the opportunity to have balanced growththe lifetime of the customer grows from the finding a partner stage to a potential for many years or even life. It also allows the company to capitalize on and build on the goodwill that they earn from their customers when they provide a positive (and life-changing) match, and glow its revenue stream from purely subscription based into a mix of subscription and advertising. Further, the ability to keep customers longer can help to bolster the network effects as the network becomes larger and offers more value.It also increases switching costs the more that one invests in building up a personal eHarmony ecosystem. In doing so, it addresses the competitive threat by beating the competition to further innovate and lock-in the customer base. And lastly, it builds on the current competencies and competitive advantages by supplement the advanced research skills that are a large part of eHarmonys success, with the collective R and knowledge serving as a breastwork to entry for potential new entrants.In order to successfully discharge this strateg y, there will be the need for additional resources. However, this will not be overwhelming and can all happen with internal investment. They will only need to build out and expand eHarmony Labs to continue the expand focus from forming relationships, to the ensuing events that occur in each relationship. With the project already underway and experienced research scientists already on the payroll, eHarmony is in a much better position to act on this than its competitors.There will some additional marketing and sales investment needed to attract new customers who are already involved in committed relationships, but the majority of its growth will be organic in that they will be able to keep their matching services customers for much longer, and greatly reduce the churn rate. In terms of the competitive threat, I turn over this will be enough to stay ahead of Match / Chemistry, and Yahoo (as well as other new entrants). The name of the game is bolstering network effects, switching cos ts, and multi-homing costs to carve out a significant and stable market share, and this strategy accomplishes all three.With more offerings, eHarmony should be able to overhear more users (as well as keeping them longer) which will continue to feed its network effects. Additionally, having all of these services under the eHarmony banner will increase the amount of time and information supplied by the customers, and thus increase both switching and multi-homing costs. As a response, eHarmony can expect the others to copy, though eHarmony is far ahead and better positioned in this field, so this is not an immediate threat. Additionally, they may find pricing pressure as the ompetition resorts to more desperate measures of slice price (since they will not be able to compete on the product). In regards to this, they need to be firm in their pricing, knowing that they have the superior product, and continue to build up switching costs to keep their customers captive for the long term. With a superior product and strong network effects in place, eHarmony can expect a profitable life in the near future. EXTRA CREDIT Yellow Submarine, With a teensy-weensy Help from My Friends, Act Naturally