Online Dating: Bumble - a Broken IPO, and a Broken Value Proposition
Bumble has had a rough ride in public markets, and it will likely continue.
The Update:
Online dating application Bumble Inc. (BMBL) has reported better-than-expected results for the third quarter ended September 30, 2021. The robust results were on the back of strong growth in revenues. However, following the earnings, shares of the company declined 9.4% to close at $43.25 in the extended trade.
The CEO of Bumble, Whitney Wolfe Herd, said, “In the third quarter, we delivered strong revenue growth and successful execution across our strategic priorities including driving user engagement, expanding into new markets, launching innovative product and safety features, and improving our overall monetization.
After listing into one of the hottest IPO markets of the last several decades, Bumble reported strong results for Q3. Since listing earlier this year it has shed almost 50% of of its market value.
Despite the fact that many richly valued digital plays like Bumble have been hitting the wall lately, there is more at play here than just mean reversion in valuations. Bumble suffers from the same limitations that Snap Inc experiences in social. They are, at best, a second tier player with a lock on a particular vertical that experiences all of the risks of concentration, without the prospect of industry domination.
To be clear, Bumble and Snap are great businesses growing at a very healthy rates. However, the question that they need to answer is: what is their addressable market? In Bumble’s case, they would argue that their addressable market is broadly the 25-40 year old professional women looking for a relationship. Less explicitly stated is that the counter-party is also obviously a part of that market. I think this categorisation isn’t intellectually honest.
Social Principles
One of the core principles of the current crop of successful internet and app-based businesses, which have become pervasive, is that long term success is attributed to those who can: 1). identify their market correctly, and 2). capture as many verticals within that market.
Meta is the paradigmatic example. In a 2012 email exchange between then Facebook CEO Mark Zuckerberg and CFO David Ebersman, Zuckerberg reveals a piece of invaluable wisdom about the nature of these dynamics:
There are network effects around social products and a finite number of different social mechanics to invent. Once someone wins at a specific mechanic, it’s difficult for others to supplant them without doing something different.
The context of the above quote is the Instagram acquisition. Of course it turned out that consolidating as many apps, with the appropriate scale, as possible (and at almost any price), was a business strategy that would catapult Meta to it’s nearly $1T valuation.
In Bumble’s case, with their core apps of Bumble and Badoo, they have certainly made in roads into a specific ‘social mechanic’. My argument would be, however, that they are a minnow in a vast ocean - if you choose to operate in the online dating market, you are by definition in a fight for the entire market.
Bumble’s Narrative vs Reality
According to Whitney Herd, Bumble CEO and co-founder:
We remain committed to our mission of creating a world where all relationships are healthy and equitable and of providing our users with easy, compelling ways to find the connections they seek.
The first part of that mission statement is the appeal to the female audience. One of the drawbacks of a free-for-all like Tinder is that it alienates a good portion of the female users. This is due to the inherent semi-anonymity, and the disconnect between physical attractiveness and social acuity many males experience. Bumble’s initial innovation was that many female users would be attracted to the idea that they could control and initiate the interaction within a dating app.
This turned out to be true. What’s more is that if you can aggregate a lot of female demand, you will naturally attract the male side of the equation. Perhaps this dynamic has led to a situation where the quality of the connections is better, and more likely to lead to an in person interaction.
The second part of the mission statement is the real value proposition: the promise of matches with people you want to meet. Here Bumble acknowledges the reality of their situation: they are in the business of connecting users romantically. Categorically, this puts them at odds with Match Group’s family of apps and sites,and every other online dating service.
Bumble Aren’t Playing the Right Game
Like it or not, the network effects inherent in these social apps makes one successful product just table stakes. The strength of many of these networks across a small but ever growing number of discreet verticals means you must become an empire, or face obscurity and perhaps failure.
Match Group is the example of a company that has had this operating agenda. The conglomerate structure (and the culture of nurturing embryonic products inherited from IAC) allows for a strategy of acquisitions (Tinder), and even copying successful competitive products that won’t sell (Hinge). Many of the Match products are extremely successful like Bumble, but there will always be new ‘social mechanics’, which means an operator can never rest.
This is not to say that Bumble isn’t a great product, which is growing rapidly across a number of countries. It is purely to point out that for them to prove a serious value proposition to the market, they must exhibit the ability expand across products. I look forward to seeing how it develops.
Thanks for sharing. Couple of thoughts:
The woman is the marginal price setter in the market. Dan McMurtrie wrote about this in his seminal piece on Tinder ~3 years ago. If you buy that argument, Bumble is probably correct to focus on this demographic (as you highlight, men will congregate where there is a significant number of women; it's the buyer-seller dynamic remixed. You have to have attractive things for sale; buyers will take care of themselves, at least initially).
Second, I'm not sure I intrinsically agree with the argument that you have to become an empire and compete for all of the pie. Valuations in these types of software infer that you *are*, but I don't know if I agree that you *have to*. I couldn't say for sure why I think this is wrong, either, but I think this would be worth exploring further. I personally feel that software is likely to fragment further especially in markets (like dating) where there are a substantial number of niches to explore. If you show "all of the women in the world" the profiles of "all of the men in the world" they still have to filter.
Universal problems like "how to keep up to date with social life / my friends" spawned universal solutions like Facebook. Niche problems like "how do I find someone just like me" will spawn niche solutions in dating apps. My guess is there are reasonable prospects of creating quite a good business in "dating apps for 25yo-40yo career women that don't want children" for example (to be hyper specific). Feels like there's an inherent tradeoff between "I can filter the whole market for you to find a subset that might fit" and "here is a tiny market of people just like you that you can go through manually". Can empire-scale companies win enough to freeze out the niche solutions? I'm not sure that they can. Valuation is a different story, however.