Hot or Not Changes Business Model

Katie Fehrenbacher from GigaOM has the story:

Hot or Not, the online dating and rating site, is about to end its main revenue stream — subscriptions — and focus instead on online ads and transactions, like selling virtual flowers. Hot or Not founder James Hong, who has gotten rich off of the subscriptions of his cash-cow, emailed us to say that the company plans to soon make its subscription-based ($6 per month) “meeting” section free to users. (…)

Hong says the online dating industry is reaching a “strategic inflection point” as the growth of the amount of paying subscribers for these sites becomes saturated and are forced to generate more revenue from existing subscribers. Over the long run, the result is fewer new subscribers, and a disappearing userbase, Hong says.

It’s not necessarily a new idea. While subscription-based online dating is still the dominant business model, we have covered free online dating sites PlentyofFish, OkCupid, and And Hong admits that they are a little late into the free ad-based game, but that “we are optimistic that it is not too late for us to change, as long as we have the courage (or insanity) to do so.” (…)

What it means: it usually takes large “cojones” to make such a move, i.e. reinventing yourself as you see your industry reach a ceiling and possibly a declining point. Reminds me of the BCG Matrix, where eventually you have to take your cash cows and either transform them into a new rising star or they become dogs. Makes me thing of Kodak, who did not see the inflection point. Makes me think of traditional media as well. TV, Radio, Newspapers, print directories. How do you know when you’ve reached a ceiling and face a declining future in one of your core products? And have you invested enough to be prepared for that moment? Many questions, but no easy answers. James Hong offers some perspective in his blog on why he can “afford” to do this move.