eHarmony does what tech ought to do

(Fortune) -- Most dotcoms don't arise from anything so touchy-feely as a desire to lower America's divorce rate. But eHarmony is a singular Internet company - one that shows how many great business opportunities remain for those who can creatively apply technology to basic societal challenges.

This 7-year-old online matchmaking startup has revenues of almost $200 million annually, and is "very, very profitable," according to its CEO Greg Waldorf, with whom I spent a fascinating lunch recently.

eHarmony was started by Dr. Neil Warren, a psychologist who, after counseling thousands of married couples, came to the less-than-earth-shaking conclusion that the single biggest factor that determines a marriage's success is picking the right partner. And he thought of something he could do about it. So he started the company with that unconventional corporate purpose. He found a bunch of programmers and went to work.

So now, for $59 a month or $251 for a full year, members can take advantage of eHarmony's sophisticated matching algorithms. The software analyzes your answers to 250 questions, which all members tackle when they join, to figure out who you might work well with. About 15,000 people submit their answers on an average day.

But you won't necessarily be matched with someone who answered the same way you did. eHarmony employs five Ph.D. researchers who are constantly tweaking the software based on their latest findings .They work with the couples and individuals and publish some of their research in scientific journals. The company hopes that its matches get people into the top quartile of marital satisfaction.

The software will recommend several potential matches for you. Members are typically in communication with five people at a time. They are guided into a "structured communication" with those people. The two of you start answering the same questions together, and looking at one another's answers.

If one chooses to do so (typically the man, Waldorf says), you can get into direct contact and arrange to meet at Starbucks (Charts, Fortune 500) or some other neutral public place of the type eHarmony recommends.

At most other matchmaking services, the process depends much more on each member's response to a photo - and user communication is mostly unsupervised e-mail.

If the goal is marriage, it seems to work. Now, Waldorf says, at least 50,000 couples have married as a result of using eHarmony. It's becoming common for the company to get word of daughters being named "Harmony." The business continues to grow partly because the stigma of online dating seems to have significantly abated for average Americans, Waldorf says.

The roots of eHarmony are serious and conservative. Dr. Warren worked closely with James Dobson's Christian "Focus on the Family" radio and TV shows. Warren also published his books with Dobson's publishing company until Dobson became highly active politically in 2004, when that relationship ended. But Waldorf says the service has always welcomed members from all religions - and is currently advertising its success helping a rabbi find a husband.

Says Waldorf: "I have lots of users who are not Christian, but I do think our site works really well for people who tend to be more spiritual, regardless of their faith." Concord on spiritual values, he points out, is usually key to a successful marriage. Remember, this is a marriage, not a dating site.

Indeed, there has been controversy, and even an ongoing lawsuit, over eHarmony's lack of services for gay users. Waldorf says down the road eHarmony could quite possibly expand into helping with such relationships. But it makes sense to me that success there could very well require different data and underlying matching algorithms.

As it is now, it's a great business. Waldorf says by year-end the company will have $100 million in cash, and he is aiming for an IPO in the not-distant future. Paid subscribers are up 30 percent year over year, and revenue and profits, he says, roughly track that figure. Now the company has expanded into Canada, with the UK and China next. The challenge is that each national market requires an entire new set of sociological research to underpin the matching software.

This is an Internet company that has largely been driven by old media. TV advertising (featuring testimonials from wedded couples) has driven it this far. Consumer research shows that 24 percent of all Americans can identify what eHarmony does with no help. That's the kind of brand that has staying power.

So now Waldorf, who was originally just a big investor and stepped into the CEO role 18 months ago, is setting his sights on a more wide-ranging set of services. "It's a great business but with high acquisition costs, so how can I extend it into a self-propagating, highly-leveraged business model?" he asks.

He notes that by now the company has deep demographic data on about 16 million people who have passed through. "My long-term ambition," he says, is to be the company that helps you with all the important relationships in your life." He sees great opportunity, for example, in helping people better relate with their parents.

Software for soft stuff. It would be nice if there was more.