Today, the world’s most valuable companies share a common characteristic: they all are ecosystem drivers and utilize different platform-based business models. Unlike companies with linear business models, platforms do not have to attract and satisfy just one group of customers, but at least two: consumers and producers. However, if these groups are not balanced, the platform’s value for the counterparty drops rapidly. To solve this challenge, platform companies apply different strategies. While some platforms subsidize one side by charging the other side a higher fee, as Microsoft does by offering free SDK to their producers, others decide to strengthen one side themselves. In the following, the attempt of a dating platform to strengthen its female user side by deploying chatbots is illustrated.
In 2016, LOVOO, a German dating platform with around 30 million users in different European countries at that time, was faced with heavy accusations. As internal documents revealed, the company was creating fake profiles on a large scale and using chatbots to interact with users. Fembots, chatbots designed exclusively for chatting with male users, attracted men to the platform and turned them into paying customers. The method: fembots sent positive ratings to male users who had to pay in order to find out where the rating had come from. The costs for getting this information were between a few cents and several euros. In sum, by using such fembots, the company had the potential to generate up to 75 euros per 1,000 artificial ratings, as internals suggested. Faced with a deceptive charge with a loss in the millions, the founders were arrested shortly after the leak. After a payment of 1.2 million euros, however, the investigations were discontinued and the founders were released again. Few months later in 2017, a large US competitor took over the startup for a purchase price of 65 million US dollars. Both founders left the company shortly afterwards.
To date, no statement has been issued by the company regarding the accuracy of the accusations made in 2016. The founders escaped in any case with a black eye (and a lot of money). Nevertheless, platform companies must carefully choose growth strategies to balance both sides of the platform and maintain their reputation. Especially when using new technologies, such as chatbots, ethical standards must be complied with to avoid violating the law and harming the own company. LOVOO’s attempt to artificially boost activity on the female user side with fembots to increase the value of the platform for male users failed and hurt the company. While LOVOO is still present in the market today with a new management, its market presence shrank from 17 countries before the scandal to 5 countries in 2019. In a recent interview, the CEO explained that the platform is once again suffering from fake profiles – this time, however, from externals. To address them, LOVOO uses algorithms to detect and delete such profiles to keep the value of the platform for male and female users as high as possible.
Sources:
Eisenmann, T., Parker, G. and Van Alstyne, M. W. (2006) Strategies for Two-Sided Markets. Harvard Business Review, 84(10), pp. 92–101. Available at: https://hbr.org/2006/10/strategies- for-two-sided-markets [Accessed 16 Oct. 2019].
Heuberger, S. (2019) „Wir standen kurz davor, alles zu verlieren“, sagt der Lovoo-CEO. Gründerszene. Business. [online] Available at: https://www.gruenderszene.de/business/interview-lovoo-florian-braunchschweig [Accessed 16 Oct. 2019].
Rixecker, K. (2015) Fake-Profile statt Seelenpartner: Wie Lovoo seine Nutzer verarscht haben soll. T3n. Digitale Wirtschaft. [online] Available at: https://t3n.de/news/chatbots-lovoo-dating-app-641521/ [Accessed 16 Oct. 2019].
The Local (2016) Police raid premises of popular Berlin dating app. [online] Available at: https://www.thelocal.de/20160608/police-arrest-founders-of-popular-berlin-dating-app-lovoo [Accessed 16 Oct. 2019].
