This document is authorized for use only by KYLE MATTICE in MGT 509 Spring 2015-1 taught by Keith Yurgosky, University of Scranton from March 2015 to August 2015.

This document is authorized for use only by KYLE MATTICE in MGT 509 Spring 2015-1 taught by Keith Yurgosky, University of Scranton from March 2015 to August 2015.
For the exclusive use of K. MATTICE, 2015.
eHarmony
709-424
Chemistry tried a “rejected by eHarmony” advertising campaign, with the tagline, “Who knows why
eHarmony has rejected over a million people looking for love? But at Chemistry.com, you can come
as you are.”47 eHarmony did not react to the advertisements.
Yahoo! Personals eHarmony also competed with Yahoo! Personals which attracted
seven million unique visitors and 5% of all visits to dating sites. Personals was a business line of the
Search division of Yahoo!, which also included Yellow Pages, Maps, and Shopping. In addition to
Search, Yahoo! had the following divisions: Front Page, Mail and Messenger, Media, and CoBranded Internet. In 2007, Yahoo! attracted a total of 107 million unique visitors, and earned $695
million on $6.9 billion of revenues, $12 billion of assets, and $9 billion of equity. Yahoo!’s overall
profitability was at least 5 percentage points lower than it was in 2006, as operating expenses
increased faster than revenues. Sales and marketing accounted for one-half of Yahoo’s! overall
operating expenses, while product development contributed one-quarter.
Yahoo! developed the Personals line internally in 1997 and relatively quickly rolled out the service
to 15 different countries. The service was not differentiated from a typical paid dating website—users
could browse a few personals for free, but to continue browsing or to communicate with others they
had to buy a subscription. The service did not change much over the first 10 years of operation,
except for the introduction of Yahoo! Personals Premier in November 2004. Launched in response to
eHarmony’s success, the new service used results from relationship and personality tests to search
and match individuals. It cost $34.95 a month, $15 more than Yahoo!’s regular service. The service
was not very successful, largely because Yahoo! did not put significant resources behind the business.
The company did not advertise on television, but spent a total of $17 million in 2007 on Internet
advertising through diverse Yahoo! properties and other search engines. Despite the lack of
advertising support, Personals contributed approximately 2.5% to Yahoo!’s revenue, with estimated
average revenue per customer of $16 per month.48
Options
With the competitors in full attack mode, Waldorf knew that eHarmony needed to respond very
soon. Together with Steiner, the COO, they continued to debate four different options.
The first option was targeted at defending eHarmony’s position as the leading matchmaking
company in the long term relationship segment of the market. Central to this option was a rapid
increase in the number of paying members to deny Chemistry a chance to grow. Reflecting on this
option, Waldorf commented “Two years ago, I believed that we had diminishing returns to
subscribers in the network. I no longer believe this at all. There is still a massive user satisfaction
effect to having more users.” Few at the company believed that increased advertising alone would be
sufficient to drive customer growth; some favored reduction of barriers to joining the site and
encouraging the use of Fast Track communication. Selling memberships to anyone who wanted to
purchase a subscription could also be considered, but then the company could not be as confident in
recommending matches that resulted in high levels of marital satisfaction.
The second option entailed broadening the customer base to include more casual daters. Waldorf
believed that the company could only expand as far as medium-term relationships without seriously
undermining its credibility with marriage-minded individuals. Although this option would expose
eHarmony to more intense competition with Yahoo! Personals and Match, the introduction of the
matching algorithm to this segment could provide a strong point of differentiation. Given that no
more than 5% of the 94 million U.S. singles were paying members of an online personals site, Waldorf
reasoned there were many people interested in medium-term relationships who could benefit from
eHarmony’s matching algorithm.