Facebook Inc. (FB) - Get Facebook, Inc. Class A Report is venturing into the online dating business with a new feature that, after recent issues with sensitive user data, some experts say the social media giant can't afford to get wrong.
CEO Mark Zuckerberg announced the new feature, called Dating, during the F8 developer conference last Tuesday. He said that the online dating platform will start testing later this year and will allow Facebook users to meet new people, focusing "on long-term relationships -- not just hookups."
"We want Facebook to be somewhere people can start meaningful relationships," a Facebook spokesperson said. The industry is growing quickly: The market research firm IBISWorld reported that the dating industry revenue increased by almost 50 percent from $1.9 billion in 2013 to $2.8 billion in 2017.
The news was "a bit of a surprise," given that the announcement came on the heels of the Cambridge Analytica data misuse scandal, according to Mark Brooks, CEO of the internet dating consultancy Courtland Brooks.
"If they screw [Dating] up, they can really screw up Facebook," Brooks said.
Profiles on the Dating platform will be separate from users' normal Facebook profiles, and the activity won't be shared with friends on Facebook, a company spokesperson said. The company does not currently have plans to show ads or to use personal information on the Dating feature to target ads across Facebook's various products, the spokesperson said.
Brooks said that Facebook has elements that are perfect for an online dating platform, namely its vast reach of more than two billion users, but "if they are going to make the most of Dating, [users] have to trust Facebook."
With the Cambridge Analytica data misuse and Zuckerberg's Congressional testimony not far behind the announcement of Dating, "it'll certainly cause some people to be reserved," said Needham analyst Kerry Rice.
Rice also raised the question of whether pursuing an online dating service is worthwhile for Facebook, although it has plenty of resources to create a viable dating platform.
"But it will never be their core business," Rice said, adding that he doesn't know anyone who goes to Facebook to find dates. "It's based on connecting with who you know, not who you don't know."
The company could be adding additional utility or "stickiness" to the Facebook app, as it has done in the past by adding features such as Marketplace and Facebook Live. It is unclear how the company will monetize the app, however, given that Facebook does not plan to run ads or charge a subscription fee for Dating.
Facebook's main competitor in online dating, Match Group, Inc. (MTCH) - Get Match Group, Inc. Report , on the other hand, has been around for a long time and online dating is its sole focus, Rice said. The dating products company includes brands such as Match, Tinder, PlentyOfFish and OkCupid, and the company makes money on its dating sites by selling subscriptions, premium services and ads. Match Group was spun out as a public company from IAC/InterActive Corp. (IAC) - Get IAC/InterActiveCorp. Report in 2015.
After Facebook's announcement on May 1, Match shares plummeted more than 20%.
Even if Facebook were to absorb Match's entire business, at a market cap of almost $10 billion, it would amount to just a small percentage of Facebook's market cap of $511.4 billion.
"I'm not sure it will ever be enough to move the needle for Facebook," Rice said.
IBISWorld analyst John Madigan agreed that Facebook's venture into online dating could be hurt by the "bad optics" surrounding its handling of sensitive user data.
"Ultimately, their competitors aren't necessarily concerned because [Facebook] is still reeling from [Cambridge Analytica]," Madigan said. "They don't feel threatened."
"We're flattered that Facebook is coming into our space -- and sees the global opportunity that we do -- as Tinder continues to skyrocket," Match Group CEO Mandy Ginsberg said in a statement. "We're surprised at the timing given the amount of personal and sensitive data that comes with this territory."
Match's parent company IAC also weighed in on the competition, with CEO Joey Levin commenting, "Come on in. The water's warm. Their product could be great for US/Russia relationships," alluding to Facebook's prior issues with Russian nationals using the platform to influence the 2016 U.S. presidential election.
While the success of the Dating feature depends in part on the security of Facebook's data, competitors like Match and EHarmony Inc. will also benefit from the company tightening its protections because apps such as Tinder and Bumble use Facebook profiles to verify users' identities.
"Facebook actually helps these apps detect faulty profiles and bad actors," Madigan said. "It's helpful for everybody."
Madigan said that it is unclear whether Facebook will choose to revoke the ability of third-party apps to use Facebook profile information in this way, but it would seem anticompetitive and against the company's best interests.
"It's just not fair," Brooks said.