Consumer Electronics and Tech Executives and Tech Companies and ChaCha and Scott Jones and Internet and Wireless and Manufacturing & Technology and Technology

ChaCha may drop T-Mobile over planned fee

September 20, 2010

The CEO of Carmel-based ChaCha is threatening to drop T-Mobile’s wireless service over the carrier’s plan to impose a new fee on text messages.

T-Mobile has said it will begin charging a fee of one-quarter of 1 cent on each text message beginning Oct. 1.  

Known as the “world’s leading answers service,” ChaCha allows wireless phone users to call in or text their questions to ChaCha’s ranks of human guides at no charge.

T-Mobile subscribers account for only about 10 percent of ChaCha’s traffic, said CEO Scott Jones, who downplayed the effect of its potential plan to drop the carrier.

“Therefore, the impact of discontinuing service to T-Mobile is negligible to ChaCha,” he said via e-mail. “While we aren’t happy about it, it was an easy decision for us.”

Still, Jones said the fee would stifle innovation and could set a dangerous precedent. If Twitter was forced to endure such a fee from all carriers, it would pay about $50 million annually based on its text traffic, Jones said.

ChaCha will continue to serve customers with other wireless services such as AT&T, Sprint and Verizon, Jones said. Fans of the answer service can also gain access through other channels, such as the World Wide Web.

“For ChaCha, this is a business issue,” he said. “We have a work-around to reduce the burden of this ‘tax.’ But, T-Mobile is giving [its] subscribers reasons to consider other carriers.”

The new fee actually would be charged to ChaCha’s aggregator, OpenMarket, which would pass on the fee to the company. Aggregators are middlemen that work between content publishers like ChaCha, Twitter and Facebook and the mobile subscribers they send content to.

ChaCha makes money by embedding advertisements in the answers. Advertisers, including giants such as McDonalds Corp. and Procter & Gamble, pay only when users respond by clicking through to the text ads ChaCha users receive with their answers.  

For most of its existence, ChaCha has been unable to turn a profit. That changed in December, when it became “gross profit positive,” meaning the company is making more per query than it is spending on its tens of thousands of guides that respond to the text messages.

T-Mobile's fee may be just the latest challenge for the fast-growing digital startup. Last month, the popular social media site Facebook launched a question-and-answer service that could cut in on ChaCha’s revenue rhythm.

Facebook Questions won’t incur the cost of paying 30,000-plus independent contract employees as does ChaCha because it will rely on other users to provide answers. ChaCha's human guides earn 2 cents to 20 cents per answer, depending on whether they’re merely screening queries or conducting heavy research.

 

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