NEW YORK (CNN/Money) -
Initially considered the last resort for the socially stunted, online dating has shrugged off its social stigma and emerged as a mainstream means for singles to find that special someone.
Time for the industry to celebrate, right? Wrong. Just when you'd think the industry would be poised to see its strongest growth, online dating is actually experiencing a slowdown.
The U.S. online dating industry is expected to climb 9 percent year-over-year with revenues of $516 million in 2005 coming from consumer subscriptions alone, said Nate Elliott, an analyst at Jupiter Research. That's slower than the 19 percent growth in 2004. And when compared with a 77 percent jump in 2003, the latest revenue trends seem cause for real concern.
"It's the natural growth curve of the industry," Elliott said. "It took a while for it to gain traction, then we saw several years of explosive growth, and now it will slow down."
The curiosity factor was one driver of business as intrigued browsers flocked to dating sites such as IAC/Interactive (Research)'s Match.com and Yahoo! (Research) Personals. But once the media picked up on the hype with films such as "Must Love Dogs" and Disney (Research)'s ABC Networks documentary/reality show "Hooking Up," it became evident that the mystique was gone.
Blame some of that on the creepiness factor, in which users finally tired of the endless barrage of oddball suitors from various sites. One former online dater said the abundance of freaks that sent her e-mails -- one resembled the Incredible Hulk while another said he preferred educated women who would spend their lives serving him -- turned her off the online scene. She eventually met her current boyfriend through friends.
While growth has slowed down, online dating is too ingrained to fade away, said Bill Tancer, general manager of worldwide research at Hitwise, an Internet market research firm. There are currently nearly 1,000 dating Web sites, Tancer said, and online dating makes up 1 percent of all Internet usage -- in other words one out of every 100 people logging on visits an online dating site.
But now enterprising singles are being slightly more select in the sites they visit. Niche sites, focused on religion or ethnicity -- such as Spark Networks (Research)' successful JDate.com for Jewish singles, or a number of sites aimed at Indians -- are popular. There are even sites centered on specific interests, such as Cowboydating.com (yee hah!), that pull in more visitors and subscription dollars.
Meanwhile, social networking sites like Friendster.com and News Corp (Research).'s MySpace.com have become increasingly popular among the younger demographic set -- those between the ages of 18 and 24.
Social networking is a difficult genre to classify. While it can be argued that all dating sites are about social networking at some level, sites like MySpace.com allow users to make connections with friends of friends and provide access to music, games and other interactive content. Since the site is marketed to singles, families and even business people looking to network, users can chat with other users without the pressure of dating.
Under the guise of sharing interests or friendship, those who log on are more inclined to find compatible mates. And social networking sites generally don't charge.
That's giving traditional online dating sites a run for their money, said John Tinker, research analyst at ThinkEquity Partners.
Tinker said that in a more competitive environment, the Big 3 online dating sites -- Yahoo! Personals, Match.com and EHarmony.com -- will have to tweak their business models and create new innovative products to grow revenue.
One place to look is advertising. Date.com's CEO Meir Strahlberg said that advertising revenues have doubled in the past few months to 10 percent of total revenue.
"There are 86 million single adults who control annual spending of $1.6 trillion," Strahlberg said. "Online dating sites reach about 30 percent of that market currently."
He said that the company can target an advertiser's products to almost any demographic based on user profiles -- an attractive point for an advertiser.
Tinker agreed that with the maturity of the Internet, online advertising has become more common and will be an increasing means of revenue growth.
Yahoo! Personals vice president and general manager Lorna Borenstein said the site, which currently leads the market, has the competitive advantage of being on a network with more than 380 million monthly visitors.
She added that the Yahoo! Personals was the first site to launch a customized approach to online dating last November.
"Today's online daters are increasingly sophisticated," she said. "You can't just increase offerings; you have to help singles figure out their relationship goals and offer tools to help them find their version of success, whatever that might be."
A representative from Match.com couldn't be reached for comment.