Greg steiner eharmony

Professors Mikołaj Jan Piskorski and Hanna Hałaburda and Research Associate Troy Smith prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

M I K O Ł A J J A N P I S K O R S K I

H A N N A H A Ł A B U R D A

T R O Y S M I T H

eHarmony

Greg Waldorf, the CEO of eHarmony, was in his car driving down the Interstate 10 Freeway after a day-long meeting with eHarmony’s senior leadership team. The sole purpose of this October 2007 meeting was to decide how the company should address recent competitor actions. After many deliberations, Waldorf’s executive team was able to identify four strategic options. Now, Waldorf and Greg Steiner, the President and COO, who was sitting next to him, were debating which option the company should pursue.

As the two whizzed down the car pool lane, passing cars stuck in traffic, they reflected on eHarmony’s success. This online personals site targeted marriage-minded individuals and offered a unique product which combined an extensive relationship questionnaire, a patented matching system and a guided communication system. Despite charging a premium for its services, eHarmony had experienced phenomenal membership growth while its competitors stalled. As a consequence, it was able to increase its paying membership base to slightly less than a half of its largest competitor, even though it entered the market six years after they did.

The success of eHarmony did not go unnoticed. From the beginning, competitors had been copying some of the company’s product features and closing the price gap. More recently, Match, eHarmony’s biggest competitor, had increased its advertising expenditures by 80 percent. Some of the increase was aimed at reviving Match’s sagging growth. However, most of it was spent on supporting the growth of Match’s new dating site, called Chemistry, which like eHarmony was a match-making service. It utilized different matching criteria and methodology, and was priced roughly 10% below eHarmony. To make matters worse, free personals sites and online social networks were exploding in popularity, challenging the business model of paid online personals.

As the two approached downtown Los Angeles, the carpool lane came to an abrupt end, leading them into a dense traffic jam. They could not help but wonder—was this also eHarmony’s future, or would one of these four options provide them with a new on-ramp to fuel growth and profitability?

Marriage Markets

Although the institution of marriage had differed substantially through time and across cultures, at the beginning of the 21st century, it remained one of the most central social institutions throughout the world. Created by a contract between two people, usually one man and one woman, marriage conferred special state, social, or religious privileges. It allowed a couple to share wealth; it regulated inheritance arrangements; and it legitimized sexual relationships and reproduction. It also regulated

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political and commercial ties among families from which the couple descended. Spouses were expected to remain exclusive to each other and, traditionally, couples followed a strict division of labor, with women responsible for childbearing and men engaged in outside labor. Although this arrangement often led to significant power inequalities in the relationship, couples were expected to stay married until one partner died, with divorce being rare. Some cultures even regulated patterns of re-marriage, expecting, for example, a widow to marry the brother of her late husband.

In some cultures, couples were betrothed to each other by their families even before they became teenagers. Other cultures allowed the process to take place later, but still with significant assistance from family, close friends, elders, or even astrologers. In some instances, third-party matchmakers were employed to find advantageous mates. Even as modernity progressed, people were expected to choose their spouses through an elaborate process, often overseen by parents. In the U.S., the concept of a potential couple meeting privately at specified times and places to get to know each other started among middle-class teenagers in the 1920s.1 However, such encounters remained relatively formal through the 1950s. Cultural changes brought more freedom in the 1960s, with the first TV show focused on dating appearing in 1965.2 By this time, most individuals found spouses through friends, colleagues, or family members, or at work, church, or school.3 By the early 1980s, the concept of marriage had evolved from a functional partnership to an institution based on “love, sexual passion, or even close friendship.”4 Indeed, Americans no longer believed that the purpose of marriage was to have children. Now, 70% wanted “their spouse to make them happy.”5 This shift in expectations made potential spouses less of “search goods,” with clearly identifiable characteristics, and more of “experience goods,” which could only be “judged by the feelings they evoked rather than the functions they performed.”6

Modern Marriage Markets

These cultural changes, coupled with several economic factors, had a substantial effect on the marriage market in the 21st century (see Exhibit 1). First, only about 16% of U.S. singles (about 7% of the adult population) reported currently looking for a romantic partner. Men were less active than women in going on dates, but men and women were equally likely to report that it was difficult to meet people.7