ChaCha Makes Its Crazy Business Model…Profitable
31 Dec 2009 // 23 comments // Internet Development
We’ve always had a lot of fun with Indianapolis-based startup ChaCha. They launched in 2007 as a human powered search engine – meaning a human found you answers when you typed in a query. Pranksters, obviously, loved it. And we noted the high cost of hiring humans to basically do Google searches and return results to people.
The human powered web search never really worked out. But ChaCha evolved. In 2008 they launched a mobile version of the service that lets users ask questions via SMS. Putting a human into the mix makes sense with mobile, with poor (or no) data connectivity and hard to use keyboards. But all phones have SMS, and ChaCha had a hit on their hands (they also had the infamous Eiffel Tower incident).
And ChaCha also made another smart move. They started archiving questions and answers on their website in January 2009. 300 million of them are now published on their website – you can view and search them from the ChaCha home page. Those pages have lots of ads generating revenue, and the search engines tend to rank pages like these highly. The company serves just under a million page views to answer pages per day, they say.
CEO Scott Jones says the company has had “explosive growth” in usage of their mobile product. In fact, the company has had to take steps in the past to control that growth, by limiting the number of questions people can ask each month. Even so, people now ask ChaCha a million questions a day via SMS. They recently passed Google and ChaCha is the no. 1 SMS search service according to Nielsen Mobile.
Those mobile questions bring in revenue, too. I asked ChaCha tonight “When and where is Avatar IMAX playing in San Francisco?” The first response, less than a minute later, was an advertisement. The second message came a minute later with the correct information: “AMC Loews Metreon 16 101 4th St. San Francisco, CA 94103 (415) 369-6201. Showtimes for 12/31/09. Avatar IMAX 9:45 am, 1:15, 4:45, 8:15, 11:45. ChaCha!” Even on a smartphone, and even dealing with the ad, it was far easier to use ChaCha than doing a mobile search via Google.
And while there are a number of easy-to-use movie apps for the iPhone and Android, ChaCha is a multi-purpose app. I can just as easily ask it for flight schedules. Or the first king of England (answer: “No one is universally recognized as the first King of England. Some historians start with Egbert, the king of Wessex”).
We’ve said all along, though, that the ChaCha mobile service was useful. But we questioned its scalability since it involves humans.
Jones says they’re scaling just fine, thanks to tens of thousands of part time guides who work from their homes for an average wage of $2.50/hour. It’s not much, but they do it voluntarily, so they must think it’s a reasonable deal. The cost of answering a question has dropped from $0.50 two years ago to just a few cents today, and Jones says they’ll get it to under a cent soon. They’re able to recycle a lot of answers, he says, and they’ve built tools to make it easier for guides to quickly answer most queries.
The company is now profitable per query, says Jones, meaning they are making more money from those SMS ads than they pay the guides. And when you add revenue from the archived website questions, the company is on path to profitability. Their current revenue run rate is $9 million or so. My guess is they need to roughly double that to become profitable as a business and support their 60 or so full time employees.
Jones says has raised $52 million, including a recent $7 million round from insiders. We’re tracking more than that on CrunchBase and have asked the company for clarification.
So ChaCha may just have a real business on its hands, despite the near constant criticism from us and others over the years. This is one time that I won’t mind at all being wrong.
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Tags: all, amc loews metreon, Android, Business, CEO Scott Jones, cha cha contractor, ChaCha, chacha independent contractors, chacha-mobile search en español, Company, crazy, data connectivity, Droid, Egbert, eiffel tower, England, Google, google search, google searches, independant contracting cha cha, independent cha cha contractor, Indianapolis, Iphone, Jones, King, loews metreon, Makes, million page views, million questions, mobile product, Model…Profitable, pranksters, proxy, Q, revenue, San Francisco, Search, search engines, Service, Sms, Start, text message chacha "independent contractor", time, Web, Website, www
This entry was posted on Thursday, December 31st, 2009 at 8:45 am and is filed under Internet Development. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
What kind of better business ideas, like American companies setting up call centers in india because the people work cheap? yea, great business idea.
what else you got?
not the first time … you had same criticisms with Hulu … but their business model is counter intuitive no?
I, for one, believe in using humans as part of search, but it only makes economical sense when the user is close to a consumer decision, and the more complicated it is the better a human will suit.
Chacha may be on the track towards turning a profit, but the VCs who poured >$50M on that venture won’t be writing this one on their bios.
KGB (text questions to kgbkgb for $0.99) has a similar back-end (low-paid home contractors) but a better revenue model (the telecoms charge and collect for them). The tough part for both of these would seem to be high customer acquisition costs. My guess is that profitable on a per text basis does not include the cost to get the customer to ask the question.
I’m always surprised when business ideas that I think are great fare better in some countries than others. In Norway and the UK, services like Cha Cha get decent publicity (TV ads, posters on the tube, etc.) and seem to me to be doing pretty well.
The point is you don’t use these services to find out things you can do a quick google search for – unless you’re stupid. You use them to get access to knowledge it would take you a bit longer to retrieve. So you’re paying a small fee to have someone else do it for you. Not a bad business model if you ask me. Perfect for pub quizzes.
I am fascinated by the ChaCha business model. However, I struggle to make all the numbers add up.
This article suggests ChaCha is profitable, although closer reading suggests it is only profitable at the gross profit level (ie per SMS, before central costs and salaried staff are added in). The article quotes the average income of a ChaCha guide to be USD2.50/hour. Assuming a guide answers 25 questions per hour (and that is going some if you are spending any time researching them) that equates to a cost of 10c per question. Yet later on, the article suggests the average cost of answering questions to be “a few cents and soon less than a cent”. That either means that researchers are super human or that nearly all questions are auto-answered? Given this range of costs to answer questions I would be fascinated to know what the average ad income per SMS is. The article possibly gives some clues.
The article also says that ChaCha has “a million questions a day via SMS”. This equates to some 365 million questions per year. Later on the article talks about “revenue run rate of USD9million”. Assuming that is annual and the revenue is all generated from SMS ads (ie ignoring other website ads and sponsorship) that would equate to an average of 2.5cents per answer, which doesn’t seem enough to pay for a researcher answered question. If the revenue run rate was monthly it might just about work ?
This reply isn’t trying to knock ChaCha. I genuinely want to understand the business model. In the UK we have a text Question and Answer service called 63336 Limited which is charged to end users and has no ad income. The researchers are paid GBP0.30 per answer which is roughly USD0.48. Despite this higher cost per answer the company is profitable and has raised no outside funding. In an interesting blog article http://www.aqa….s-in-its-texts/ it discussed the ad-funded model and concluded it wasn’t appropriate for SMS answers. This makes the ChaCha experiment all the more interesting.
Everything has been affected by social networks this days…
Still don’t think it’s going to be profitable.
There is too much of ads (4 inside a page)
http://www.chac…ay-what-i-typed
apparently from what i saw on the tv today during the news block, BING (yeah that search engine with the crappy name) is actually better when it comes to searching for movie screenings at nearby theatres.
Geez, the answers are terrible as I look at more. So the home page features “Popular Questions” with the first one being the movie one that has the wrong answer listing a site that no longer works.
The Yudu answer is either outdated or the price has gone up by $30 at Amazon since they wrote it.
Laptops under $300, they point me to one place? iOffer? Via a weird query formulated in a way that it doesn’t actually bring any up?
The question on the % of US households with credit card debt over $10,000. They don’t answer it. They answer the % over $8,000. That’s nice, but it wasn’t what was asked. But hey, maybe close enough for government work.
For where can you see full episodes of Sons Of Anarchy, they point to Fancast, because um, pointing at the official FX site with them would be too hard?
Somehow, I think the rates they’re charging those compiling these answers should go up.
My favorite part of these pages are the “Popular Searches” section at the bottom of each. You can’t click on to generate searches. There’s no particular explanation to them. There’s an easy way to know why they are there. It’s extra keyword fodder for Google. Keyword stuffing, to me. Not really on with Google’s guidelines. But you know, they’re an AdSense partner, so maybe it’ll all be good.
Long live the fast food content, eh?
[...] Trending Topic: ChaCha Makes Its [...]
Err… why do they have google ads then?
Employee=$7.25/hour
Independent Contractor=$2.50/hr or whatever is the going rate.
I like your posts, but find it funny the start ups that you rightfully riducal end up making it, while the ones you fully support end up in the deadpool
OMG, Mike, how is using this service for your movie query easier than typing in “avatar san francisco” into Google on your phone?
Seriously, I look for movies this way all the time on my phone. Just enter the movie name and city or better zip code, there are answers at the top of the page.
What ChaCha sent you as the second answer you’re happy with isn’t even right. I mean, if you’re near the Metreon, then maybe that’s correct. But what if the AMC on Van Ness is closer to me?
And how did ChaCha’s advertisers do off that query? I mean, you ignored the ad they sent. Not a particular good ad in that case for the service.
Still, the stats you cite are impressive. I’m kind of with you on the entire would ChaCha even make it. They’ve hung in there longer than I expected, so they must be finding their niche somehow.
That low cost, I assume, is also in part because those workers are probably just using Google to look up answers.
By the way, those archived answers? The one you pointed at is crappy. Where can you watch movies online, and they give only one answer? There are many places — and what they do give doesn’t even work. But hey, they’re earning off those Google AdSense ads, so I suppose Google doesn’t mind ranking them. I assume the pop-under they gave me is doing well for them, too.
I find it a little funny that we Indians bitch and moan at situations like this, but when it comes to electing leaders, it’s one socialist after another…
This is brilliant. I wonder how it compares with Aardvark’s biz model. Thoughts and suggestions will be appreciated!!!
Mike, don’t Tech companies have to deal with minimum wage laws? $2.50 / hour is wayy below the mandated $7.25 / hour…
The thing I like most about this article is the last sentence.
[...] This post was mentioned on Twitter by 7TouchGroup, Saps J. Saps J said: ChaCha Makes Its Crazy Business Model…Profitable http://bte.tc/abKe #RTW [...]
I swear, it is possible to get this funded in the US only. A million better business ideas in India never get funded.
Mike, i like when you write posts like those!