ChaCha Makes Its Crazy Business Model…Profitable

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.