Facebook Dating App Maker SNAP Interactive CEO On The Importance Of Getting There First

cliff lerner snap interactive

[credit provider=”Snap Interactive”]

Until Zynga actually hits the public markets, there’s only one Facebook app company you can invest in: SNAP Interactive.SNAP Interactive (STVI) makes “AreYouInterested.com,” one of the most popular dating applications on Facebook. Last December, Bloomberg wrote about the company and its stock went soaring. After the stock soared, Snap sold some stock to raise money for new projects.

With Zynga about to hit the public markets, and Google+ emerging from nowhere we spoke with SNAP’s CEO Cliff Lerner about what it’s like to run a business that resides entirely inside Facebook.

Business Insider:  Why did you decide to put your company on Facebook in the first place?

Cliff Lerner: It was actually a very challenging decision at the time. Iamfreetonight.com was getting significant traction. But in May 2007, Facebook launched their platform, we spent a couple of days building a basic application that got several thousand users in a few hours of work.

We were a very small company at the time, with just one developer, and we had to make the decision to keep going with a product that was going very nicely, that we had invested two years in, or transition to Facebook in something we knew very little about that we had spent a few hours in.

At the end of the day, it was a gut decision that we saw things on Facebook that we had never seen before. The ability to acquire users and reach users through the social graph that just looked like a once in a lifetime opportunity. And it was very hard to throw two years of work down the drain for site that was doing pretty well. We transitioned the business entirely to Facebook and shut down Iamfreetonight on the spot in 2007.

BI: In 2007, you’re already a public company. Why did you hit the public markets so early?

CL: At the time, online dating sites were just starting to go mainstream after social networking sites. We actually had Myspace, which was picking up significant traction as a public company — part of Intermix. And a company called Udate had just been sold as a public company for a significant amount of money. So we thought that the market opportunity was there for a publicly traded company in 2006. We’ve never actually raised any venture capital funding, which is pretty unique for the industry at any point.

BI: Why didn’t you raise money?

CL: I wanted to make sure we didn’t go the venture capital route because we thought we had ideas that could really disrupt the industry, and I wanted to maintain a very long-term view. And I think as time has gone by, one thing that’s really helped us is, a lot of our competitors that have raised venture capital money — most of them are long gone — mostly because of that. They couldn’t really focus on the long term opportunities. And we could focus on the big picture because we didn’t raise that VC money.

I think a great example is about two years ago when Facebook really started to clamp down on the viral channels, you had — especially at all the VC-backed companies — everyone was down on the Facebook platform. You had to diversify, you had to get off of Facebook. And we actually looked at it the completely other way. We thought it was time to double down on Facebook. The fact that everyone was down on Facebook and were clamping down on viral opportunities, we thought that really opened up a window, and we double-downed on Facebook, and that put more resources into it, and it really helped out.

BI: What have you learned through the years from relying on Facebook for all of your business?

CL: Well, I’ve learned that timing is very important. I think you’ll see that Facebook was a once-in-a-lifetime opportunity. If you were in the right place a the right time, you could gain an extraordinary amount of users for very little cost. And the companies that continue to be very successful today are the ones that got in early on. And, particularly in the industries where network effects are so crucial, which dating is more so than anything, once you get that critical mass of users, you’re in a very, very good place. When you look at the history of online dating, the same companies that are very large today are the same companies that were large many, many years ago. And it’s ultimately because of the network effect. For every user that we get, everyone in the system benefits. And it’s very, very hard to get to that critical mass where you have network effects. You need millions and millions of users.

So, as much as I’d like to say it’s because we’re really smart, more than anything, timing, for the companies that are very successful now, it was critical to get millions of users very cheaply, as well as virally, back in the da. Facebook continues to grow at extraordinary rates, and we’re consistently able to piggy back on top of that growth. That’s where users are, that’s where users are spending more and more time everyday – on Facebook. It’s been a great thing to have a large product on Facebook and leverage the site.

Snap Interactive quarterly revenue
SNAP’s revenue has been growing

[credit provider=”Snap Interactive”]

BI: How is your relationship with Facebook? Do have any concerns about depending on their platform?CL: You always have some concern in the back of your mind, being dependent on the platform, but for us it’s been nothing but a home run. We have nearly 50 million installs. We’ve become a significant player in the dating space, at a fraction of the cost of what most companies in the dating space have had to spend. So, it’s been a beautiful experience for us. But besides that, we do have a destination site and an iPhone app on both products. So, we do have a presence on multiple platforms.

BI: What do you think of Google+ ? If they opened that up in the way that Facebook opened to developers, would you go there too, or would you stick your focus entirely on Facebook?

CL: We’re always looking at new and exciting opportunities. That’s something that a company like us the ability to execute — Identifying opportunities, iterating very, very quickly. That’s really how we’re able to stay ahead of the competition, particularly with, let’s call them the more traditional players in the space. So, whether we think whether it’s Google + or iPhone or mobile in general, there are opportunities now that really are offering the ability to disrupt industries, and there will be very large players that exist overnight. So, we’re constantly looking for and exploring new opportunities. And it’s important for us to test out new things and then iterate very quickly to see if there’s an opportunity.

BI: Have you heard anything about Facebook doing their own HTML5 mobile app market?

CL: No. Only what we’ve all read on the web.

BI: Is that something that would appeal to you?

CL: I mean, that would be very interesting because if anything, it would provide easy discovery of application. And nothing gets the user to install an application better than knowing that your friends are on it. That would certainly be very interesting for app discovery of our products.

Facebook knows which of your friends have all your apps. Unless you use Facebook Connect, iPhone doesn’t know which of your friends have your apps, and that’s the best way to grow a product, by telling the user which of their friends are already on the app or recommending the app.

BI: Have you noticed any big differences between Apple’s mobile app market and the Facebook’s app market?

CL: Yeah, what we’ve noticed on mobile is people are most interested in – in interacting with friends or new people who are nearby and online. So what that means is having the critical mass of users who are online in a specific area is very important and that’s really challenging to do at this stage because of all the different mobile devices and they are just not that many companies that have that size of user base to offer product that has a critical mass of users online. We have 50 million users who have installed our products on Facebook. As time goes on, we think we’re pretty nicely positioned to be a leader in this space.

Another thing we’ve learned is when we built our mobile products on iPhone, we built them as an extension of our Facebook products. Basically, give the ability to login to their accounts; read their messages and such.

What we’ve learned pretty quickly is that wasn’t a great idea. People are looking to use location-aware products on the iPhone very differently than the web.

BI: What’s the best method for acquiring new users on Facebook?

CL: We have a pretty sophisticated system in-house that will put all our users into various categories based on their age range, their sexuality, their location, even their religion or ethnicities, and we know how much it costs to acquire a certain user. And we can build out a model on how much they’re worth to us.

What we’ll do is we’ll try to acquire users all over the place and very quickly be able to determine — map out an ROI for every type of user. So for a particular user — we might be getting a 30% return on investment; a different type of user we might be getting a 90% return on investment. Obviously the higher the return on investment, we’ll put more money in trying to acquire those types of users.

The beauty of Facebook is you can target at such a micro level. You can literally put in any criteria to target. So, every product, particularly dating is going to have areas where certain types of users are very, very profitable; and that’s what makes it so exciting on Facebook where you can target at such a micro level going after those users where we have a pretty good idea as to what they’re worth to us, and what we’ll have to pay for them.