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ChaCha co-founder dancing to different drum

April 27, 2009
ChaCha Search Inc. co-founder Brad Bostic has stepped down as president of the human-assisted Internet search company, which is struggling to turn a profit in a dismal advertising climate, but he hasn't left.

"Brad is still engaged with the company as a director, co-founder and consultant," said co-founder and CEO Scott Jones. There are no plans to replace Bostic.

Bostic said the company he and Jones founded in 2006 has matured to the point that he's no longer needed to handle day-to-day issues.

"I'm doing some evangelism for the company at trade shows, at conferences. [To say I] 'left' is not the appropriate characterization," Bostic said.

Bostic is founder and chairman of Columbus, Ohio-based Bostech Corp., which helps internal and business-to-business software systems talk to each other at companies including Amazon.com.

ChaCha provides answers to questions wireless phone users ask while on the go via text message or a phone call to ChaCha. Answers are culled from the Internet by an army of ChaCha search guides, who often work from computers at home as a part-time gig. The company makes money by embedding advertisements in the answers, though the market for such advertising has been thin lately, forcing the company to pare expenses.

Earlier this year, Carmel-based ChaCha laid off 25 employees, on top of eight let go in late 2008. At last count, the company employed about 55. It has also instituted pay cuts and freezes on bonuses this year.

In spite of its financial challenges, ChaCha has found an audience, particularly among the middle- and high-school and college demographics advertisers typically covet.

The company has grown with the backing of prominent industry leaders, including Amazon.com founder Jeff Bezos and Compaq Computer founder Rod Canion.

According to Jones, the privately held company since inception has been funded with $43 million, including $2 million from Indiana's 21st Century Fund.

Jones acknowledges ChaCha has yet to turn a profit and is "not cash-flow positive."

But the money invested so far has at least brought ChaCha substantial text messaging traffic. In the fourth quarter, ChaCha was the seventh-most-trafficked service behind better-known names such as Google, Facebook and Twitter, according to New York City-based The Nielsen Co.

Jones has been spending the majority of his time lately trying to build a larger advertising base, starting with six target cities, including Indianapolis, Phoenix and New York. The company recently brought in Rob Wilk, a former Yahoo! executive, to run ChaCha's new Manhattan sales office.

"For the cash invested, I think we might have accomplished the biggest bang for the buck," he said. "With our new sales office in New York City, we feel very good about our ability to generate revenue."

That revenue has increased for each of the past three months and for each of the last five quarters, he said, though he declined to reveal the numbers. Big national advertisers include Coca-Cola, McDonald's and Sprint.

Under ChaCha's business model, advertisers pay only when users respond by clicking through to the text ad ChaCha users receive with their answer. ChaCha claims a click-through rate of 10 percent to 20 percent, "unheard of with other forms of advertising," Jones said.

One competitor, New York-based KGB. com has an entirely different revenue model, however. Rather than offer the service free to users, KGB charges users 99 cents per question.

Jones is dismissive of KGB.

"It's the youth generation [users] and they're not going to pay for anything," he said.

ChaCha's been trying reduce what it spends on search guides—at one point, ChaCha had 30,000 of them—through automation. Queries that previously were answered by guides are stored in an ever-growing database and retrieved automatically when the same query is asked later.

"The challenge for ChaCha is to really strike the right balance between automation and human involvement. ... At the same time, people are more expensive than computers," said Greg Sterling, senior analyst at Opus Research.

While texting has taken off in popularity, many companies spooked by the recession are cautious about advertising via text messages despite the format's ability to target the young demographic, Sterling said.

"It's still regarded as experimental, in some cases," he said. 
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