Flirtomatic: Selling digital ice cubes and other online bling for real dollars
Curtis launched Flirtomatic four years ago as an online venture aimed at capturing a small slice of the fast-growing digital dating market. After failing to get Web traction, Curtis found success with a mobile focus. On September 23, he upped the ante by hiring two executives to run Flirtomatic's U.S. operation, including Gary Cohen, a former senior exec with AT&T Wireless (T), who was appointed Flirtomatic's VP of North America. Flirtomatic says it is about to announce a big deal with a U.S. carrier, and Cohen's hire suggests that AT&T is the likely carrier, which would be a huge win for Curtis. (Flirtomatic did not confirm the identity of its wireless partner.)
Why AT&T and others might be interested is obvious. Flirtomatic is pulling in $12 per month from 175,000 paying customers on seven major carriers in the U.K. Germany, and Australia. Roughly 30 percent of its customers use the service at an astonishing frequency of seven times a day. Flirtomatic splits revenues from sales of virtual goods with the wireless carriers. It has raked in $11 million in venture backing to date and expects to turn a profit by next year.
Selling virtual goods is hardly a novel phenomenon. In Asia, sales of virtual goods on mobile social network games have been a fixture of youth culture for nearly a decade. Prominent venture capitalist Jeremy Liew, of Lightspeed Ventures, put paying real money for imaginary products among his top growth stories for 2009. The global market for virtual goods is roughly $1.5 billion in annual monies spent, venture capitalist Susan Wu wrote in TechCrunch in 2007. The total has likely risen since then; with companies like Flirtomatic, the virtual-goods category seems poised to enter more mainstream populations in North America.
So how is Flirtomatic different than other dating sites or services, like eHarmony or Match.com, a subsidiary of Barry Diller's InteractiveCorp (IACI)? It's not focused on a goal; it asks users to input ZIP codes, so they can flirt with those nearby, but doesn't use GPS information from the phones (or try to get them married). And it doesn't recommend or create mechanisms for offline meet-ups, keeping the fun online and safe, although a small fraction of users meet offline, Curtis says. Flirtomatic players would rate each other based on the quality of the flirting or, to a lesser degree, their pictures.
Flirtomatic users can join by merely providing a name, sex, and phone number or email address -- a process designed to take only 15 to 20 seconds, says Curtis. Once logged on, users can search for partners for mobile flirting over the wireless Internet and send each other text sweet nothings or virtual gifts. Flirters can also interact online through a Web-based interface. The service works on any handset that can reach the Internet and isn't just restricted to smartphones, giving Curtis entree to a much bigger market, as well as markets in the developing world.
In building Flirtomatic and selling virtual goods, Curtis is stealing a page from successful Chinese wireless and online-game companies such as TenCent and Shanda Interactive (SNDA), as well as U.S.-based companies like SecondLife. Flirtomatic customers can interact with no pay-to-play restrictions and a variety of virtual goods. "Think of us as a park where everyone can go for a walk," Curtis says. "It's nice to walk around the park and talk to pretty girls or handsome guys. But you may want to buy a sweetheart an ice cream or take them for a boat ride. We sell the ice cream cones and rent the boats to go rowing on the lake."
Flirtomatic sells much of the digital bling now popular on virtual communities such as SecondLife or in social networks like Facebook -- diamond rings, gold, flowers. With no limitations on such pixel-based wares, the "products" are massively scaleable. Equally important, these items scale downward. Curtis can make enough money, even on items purchased only a few hundred times, to ensure that some are blockbuster hits. When a heatwave struck Britain last summer, Curtis and his team quickly set up a new sales item -- virtual ice cubes that melted on the handsets' screens in a splash of color. He sold them for 50p (80 U.S. cents) each. Flirters bought tens of thousands of imaginary ice cubes to send to flirting partners.
Equally interesting, Curtis has turned the idea of user ratings into a profit generator. Flirtomatic customers can pay to have bad ratings removed from their profile. Bad ratings have generated huge controversies among eBay merchants and eateries panned on Yelp.com, but Curtis says his users didn't mind. "They actually loved it," he says. "They all know it's part of the game and don't see any problem with people tweaking their ratings.
Another surprising money generator: ad sales -- to users. "People buy placement for themselves in our system to ensure that they have greater visibility and are a better flirting target," Curtis says. One hilarious example: the ego boost. Flirtomatic users rate each other on a 10-point scale; averages are visible to all. But buying an ego boost lets users buy a rating of 11 -- a play on the classic joke from This is Spinal Tap: "This one goes to 11."
Add to this more traditional merchant placements, like a hard-cider company that let flirters send free virtual pints (redeemable for actual quaffs at local pubs), and Flirtomatic has managed to build out a number of solid repeatable revenue streams. The mobile game with a social twist ties directly into the Zeitgeist that has propelled such startups as FourSquare to prominence. And if Curtis can sell virtual ice cubes -- well, I've got a virtual bridge near Brooklyn that I think will sell very well on handsets.
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