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Online personals business gets nasty

Match.com serves subpoenas to six former empoyees who went to work for a rival Internet dating service.

The online personals business is getting to be about as much of a jungle as the dating market itself--at least from the looks of a battle between Barry Diller's Match.com and an upstart competitor.

Diller's InterActiveCorp has launched legal action against six former employees of its Match.com online dating service, who moved to TrueBeginnings, a Texas-based relationship Web site.

Match.com had subpoenas served on the former employees to investigate potential breach of contract, breach of fiduciary duty and other interference with business relations, according to a TrueBeginnings statement.

Match.com declined to comment on the legal issue, but TrueBeginnings CEO Herb Vest was much more vocal.

Vest took out full-page advertisements in the Monday and Tuesday editions of The Wall Street Journal and The Dallas Morning News, calling the actions "a blatant effort to intimidate these six individuals."

Like a hero in a romance novel, Vest vowed to defend his employees. "To get to them, you must, first, come through me," Vest wrote in the ad. "True reviewed the employees' agreements, and we firmly believe that we have not broken any rules by hiring them."

The public tussle is the latest indication of the just how cutthroat the business of online personals has become.

Even as revenue across the industry continues to grow, growth rates and margins are shrinking, analysts say.

In the first quarter, Match.com revenue grew by 19 percent on a year-over-year basis, compared with a higher rate of 29 percent growth in the fourth quarter of last year. Profit margins were 13 percent in the first quarter, compared with 17 percent in the fourth quarter of last year.

"If unit growth is accelerating, why is revenue growth decelerating?" said Mark Mahaney, an analyst at American Technology Research.

Tim Sullivan, Match.com's CEO, disputed the notion that the industry is slowing, and said profit margins weakened in the first quarter as the company spent heavily on expanding its service into international markets.

Match.com now operates in 31 countries, including China, Sweden and the United Kingdom.

"We're expecting to see solid returns in the latter part of this year," Sullivan said.

Indeed, interest has not waned in recent months. Analysts estimated that about two out of five singles who are online in the U.S. have visited a personals site, with nearly one in four having posted a profile, according to Jupiter Research.

"It's the biggest form of paid content," said Nate Elliott, an analyst at Jupiter Research, who estimated the industry is expected to generate $398 million in sales this year, and about $642 million by 2008.

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