What Does Tinder's Hookup With Instagram Mean For Facebook Inc?

By Markets Fool.com

Tinder recently integrated Facebook 's Instagram into its popular dating app. The connected profiles will display a user's 34 most recent Instagram photos and link back to the main Instagram app. Users with private Instagram accounts can also allow Tinder to access their photos without altering their Instagram privacy settings. This update marks Tinder's first major profile overhaul since its launch in Sep. 2012.

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Tinder. Source: Google Play.

Tinder's profiles, which previously only displayed mutual friends, will also be expanded to let users connect to friends of mutual friends. Tinder's new profiles will also reveal all of a user's Facebook interests, not just mutual ones, to potential matches. Let's take a look at the growth of Tinder, its new relationship with Instagram, and what that means for Facebook.

Tinder by the numbers
Tinder had nearly 50 million active users as of last October, up from 4 million users a year earlier. Tinder's soaring popularity is fueled by its simplicity: simply swipe right on user's profile to like and left to dislike. The app only matches up users who mutually like each others' profiles.

This simple, user-powered approach is radically different from traditional dating sites like eHarmony, OKCupid, and Match.com, which all claim that their magic matchmaking algorithms help users find true love. On Tinder, there aren't any tedious profiles to fill out -- users simply login through Facebook, select a few profile photos, and their interests are automatically filled in via Facebook.

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That streamlined simplicity pays off. According to Tinder, users log into its app 11 times daily. Each session lasts between seven to nine minutes, which adds up to nearly 90 minutes of daily swiping. By comparison, users spend an average of 21 minutes on Instagram and 42 minutes on Facebook daily, according to Cowen & Co's Nov. 2014 survey.

Since Tinder and Facebook are already connected, synchronizing with Instagram is a logical next step. Between Sep. 2013 and Dec. 2014, Instagram's monthly active users doubled from 150 million to 300 million. Synchronizing Instagram accounts to Tinder profiles is an easy way to add more recent photos without turning the dating app into a social network of its own.

The monetization question
Tinder has a high level of engagement, but the company hasn't fully monetized the app yet. It recently introduced Tinder Plus, a subscription-based service which eliminates geographical restrictions, lets users "undo" accidental swipes, and eliminates ads.

Last year, IAC -- the parent company of Match.com, OKCupid, and other dating sites -- acquired a majority stake in Tinder. IAC is a diversified media and Internet company which holds a diversified portfolio of dating, education, search, media, and e-commerce sites. Barclays estimates that under IAC's guidance, Tinder could generate as muchas $180 million in revenues in 2015. That would be a tiny fraction of the $3.3 billion in revenues that analysts expect IAC to report in 2015, but it would be a promising improvement for Tinder, which hasn't generated any meaningful revenue yet.

Like IAC, Facebook faces a monetization dilemma with Instagram, which it acquired for $1 billion in 2012. Instagram has sold ads since late 2013, but they were basically single photo or video billboards. Advertisers also couldn't add links from Instagram ads to their external websites or apps. To address those limitations, Instagram added "carousel" ads -- which include multiple photos and a clickable link at the end -- in April. Cowen & Co. estimates that Instagram will generate $700 million in revenue this year and $5.8 billion in revenue by 2020.

Instagram. Source: Google Play.

How Tinder could help Facebook
Just under $6 billion would be a healthy chunk of change for Facebook, which is expected to generate $17.2 billion in revenue this year and $22.7 billion in 2016.

Streamlined ads could help Instagram meet those expectations, but better integration with popular apps like Tinder could accelerate that growth. Tinder users will start using Instagram more frequently to update their photo streams. Since Tinder already pulls user interests from Facebook profiles, it strengthens the symbiotic relationship between Tinder, Facebook, and Instagram.

That relationship also helps Facebook remain relevant among younger users. Last February, The Guardian reported that over half of Tinder's users were between the ages of 18 to 24. By comparison, less than a quarter of Facebook's U.S. users were within that age group last year, according to research firm iStrategyLabs.

Tinder is also planning to launch smartwatch apps for Android Wear and Apple Watch. Both Facebook and Instagram alsohave a presence in smartwatches, but Tinder smartwatch apps could tether more dating-focused users into the shared ecosystem.

A win-win situation
The closer relationship between Tinder and Instagram benefits both IAC and Facebook. Tinder doesn't have to worry about adding new social networking features, Instagram becomes the app's official photo stream, and Facebook serves as its social backbone. This relationship could make it easier to monetize both Tinder and Instagram over the next few years.

The article What Does Tinder's Hookup With Instagram Mean For Facebook Inc? originally appeared on Fool.com.

Leo Sun owns shares of Apple and Facebook. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.