Principles: Monetization

Preface

To discuss the topic of monetization and pricing power, we borrow the business model of dating apps.

Pay to Find Love

If you look at listed dating apps companies like Match Group and Bumble, you would notice that their share prices have only declined precipitously since they went public.

Dating apps are digital platforms which requires little capital reinvestment, possesses two-sided network effects, and sells a service that targets 2.1 billion singles globally. Sounds like a good business model, why then are they not doing well?

For example, Match Group, who owns popular apps like Tinder, it made $3.5b of revenues in 2025. They have 82 million monthly active users across all its dating apps, with 13.8 million paying users. That’s an average of ~$20 per month per user.

Now, how much is the average person willing to pay to meet their future partner? It’s reasonable to think it’s a high price, definitely far more than $20/month.

So where's the pricing power?

Even global spending for home paper towels was larger at $12b in 2017. This question brings us to the topic on how businesses monetize their products & services.

Inconsistent Value Proposition

There are 3 main goals of a good business, and the sequence in which these goals happen is important:

1. Create value through their products & services.

2. Capture a portion of that value.

3. Protect their captured value.

Dating apps businesses strive to do all 3 goals, but their monetization method is flawed because they collect money before even creating value for customers.

When you go on paid subscription in a dating app it comes with only a promise that you will be able to find your partner, but there’s no actual demonstrated value delivered upon payment. You may hear anecdotes from friends who had success, but also you know there’s many others who failed. You don’t know which camp you’re going to end up in.

In short, the value proposition offered to you is an inconsistent one. This inconsistency shows up in your low willingness-to-pay.

If somehow they could charge after people found their partner, then they would likely pay more, however it’s impossible to enforce such rules. That’s why dating apps are poor business models.

It’s actually fine to monetize before delivering value, but the value proposition must be consistent. This is the reason why META has such a powerful advertising platform; because they charge advertisers based on the outcomes they want, and so advertisers are willing to pay a premium.

Before targeted ads was a thing, advertisers were simply reaching out to as many people as possible hoping that some of them hit the target audience. This idea is the same as dating apps, when the outcome is inconsistent, the willingness-to-pay is low.

Another good example is the restaurant business. When people repeatedly visit the same restaurant it’s because there are no surprises in the outcome. The experience is consistently good, and people willingness-to-pay increases over time.

Low outcome variance is key to pricing power.

Look what happens when restaurants expand on franchise? Well, sometimes quality control degrades and the experience is no longer consistently good, when the value delivered starts to deviate from expectations, people look for alternatives.

Incentives Alignment

When you go on a dating app, there is the friction of uploading a picture, writing a profile and messaging people. At this stage you don’t even have any success, but yet you already paid the subscription fee. Even worse, the incentives are misaligned: If the platform helped find your partner quickly, then you would stop paying. So the dating app business actually hopes that you struggle to find success!

To monetize before delivering value, a business must align incentives with customers. Think about why Amazon protects buyers for purchases sold and fulfilled by third-party sellers, covering timely delivery and the condition of items? It’s precisely to get the buyer across the monetization hurdle where they fear a faulty product sold over the internet.

Most of the time problems in businesses are solvable. Dating apps know of their monetization flaws and have tried to convince users with paid features like Boost (Tinder) where their profiles will be pushed up the discovery list. The goal is to promise higher visibility when users pay, and while it’s true that being more visible improves chances, it still doesn’t gaurantee success. In fact, users are still fishing in the same pool, there’s no real change in dating quality even when the number of hits increased.

The above points explain why Match Group has pulled the pricing lever aggressively by introducing tiered pricing. A strategy that’s discriminatory; younger people pay less while older people pay more.

Although it’s true that older people have more disposable income to spare, the more important truth is that the pricing model is already at the border of customers’ willingness-to-pay. There’s no more wriggle room left.

When an inconsistent outcome is paired with monetization before value delivery it absolutely destroys consumers’ willingness-to-pay.

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