When incentives go wrong

In a previous post I claimed that online dating should be a winner-takes-all market, and that because there was no winner, something must be broken. If true, why might this be the case?

One possibility is that matchmaking is just a really difficult problem, and no-one has cracked it yet.

Maybe. But a cynical explanation is that the dating apps don't want people to match.

“Show me the incentive and I will show you the outcome.” — Charlie Munger

Consider a typical user of dating apps. What they want is to install an app, use it find someone special, then delete it. And to do that as quickly as possible.

But from the perspective of an app maker — given their revenue models — the ideal user is one who installs the app, then uses it forever, ideally paying for optional extras.

Their incentive is to make an addictive app that acts like a slot machine, with lots of colour and animations, and the occasional almost-win. But little or no actual success.

That may be a profitable approach, but it's not what the user wants.

When incentives go wrong

Years ago, Yahoo! was a very successful company. Their home page was one of the most visited pages on the internet, so they decided to pursue something called a portal strategy. This involved putting news and weather on their home page, along with a search engine and lots of ads.

However, at this point Yahoo had given up on building their own search engine, so they decided to buy one. And one of the engines they tried was from a little startup called Google.

Yahoo hated the results. The Google search engine was too good. Users found what they were looking for straight away, and didn't hang around to look at the ads. So Yahoo went with a crappier search engine that earned them more ad revenue.

And we all know who ended up winning the search market.

In short, companies whose incentives conflict with their users will usually be beaten by competitors who incentives are more aligned. And that applies to dating apps.

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