ChaCha prepares for profitability with $7M VC round

Armed with another $7 million in venture-capital funding, mobile search company ChaCha expects to become profitable in the second quarter, according to founder, Chaiman and CEO Scott Jones.
The 4-year-old firm, which uses a combination of proprietary search technology and human “guides” to provide answers to questions, has racked up a number of impressive wins recently. ChaCha’s text service passed Google in mobile text traffic in the third quarter, according to figures from Nielsen Mobile. In November, the company said its website was second only to Twitter in mobile growth and just behind Facebook in receiving in-bound messages from people age 24 and under. (Nielsen still named Google Search the top website accessed over a mobile phone from January through September.) ChaCha’s website was among the fastest-growing websites in 2009, and the fastest-growing website in the last six months, landing it in the Quantcast Top 100 websites in November – again pretty impressive since ChaCha only launched its website in January 2009, and since the company has grown mainly through word of mouth. Users with a query – whether it’s a serious health question or a bar bet – either text 242242, call (800) 2ChaCha or go to chacha.com to get answers within minutes. While ChaCha is working on the answer, users are served an ad. The company’s business model is unique in that it uses people to augment its database. Services like Google Search and 4INFO are also free, but rely on technology. Competitor kgb also uses people but is a paid service.
ChaCha is now profitable on a per-search query, Jones said in an interview with RCR Wireless News. “Two years ago, the cost to provide an answer was expensive, but we’ve reduced those costs now by 25 times, as our database continues to grow.” To date, ChaCha has answered 300 million questions, mostly from the under-25 crowd, which makes the company’s service attractive to advertisers, particularly entertainment brands, Jones said. In October, ChaCha carried out a six-day text campaign for The CW Network’s hit show, The Vampire Diaries, targeting teens who asked questions to ChaCha. The company also said it increased unaided awareness for Paramount Pictures’ “Transformers: Revenge of the Fallen” by 27 percentage points, servicing nearly 1 million text ads the week before the movie opened. ChaCha doesn’t replace traditional advertising, Jones said, but extends it. The company also has advertising relationships with IKEA, McDonald’s, Palm, Coca Cola, AT&T, J&J, P&G, Wal-Mart, Best Buy and others.
Part of ChaCha’s success with advertisers is that its users give the search service demographic information about themselves, which helps advertisers target their messages to the crowd they are trying to attract. ChaCha knows its users gender, ages and ZIP codes, for example. “Eighty to 90% of our users are happy go come through those gates,” to opt in to use the service, Jones said. “The best we’ve been able to determine is that ChaCha acts as their smart friend,” so users trust giving up that demographic information in exchange for answers to their questions.
Although users can access ChaCha’s service via voice and the web, text is the predominant method people use to access the service. “And that’s where we trounce them on accuracy,” Jones said, noting a search on Google or Yahoo! can return thousands of possible answers, while ChaCha delivers one answer. Sometimes a guide can get the answer wrong, but Jones said the guides are correct about 90% of the time.
Surprisingly, ChaCha’s iPhone app is getting even stronger engagement from users than its mobile text offering. With that success, Jones said the company is in the process of building apps to run on other mobile platforms as well.
The Carmel, Ind.-based company has received $52 million in funding since its inception. Investors include Amazon.com’s Jeff Bezos, Morton Meyerson (leader of EDS and Perot Systems), Rod Canion (the creator of the portable computer industry), Jack Gill (co-founder of Vanguard Ventures), Don Aquilano, (MP of Gazelle TechVentures), members of the Simon Mall family, and others. While the company counts fewer than 100 employees and contractors, it pays thousands of guides to help perform the search functions. Jones is a seasoned entrepreneur, having founded several companies, including Boston Technology, a voice-mail company sold to Comverse for $843 million, and music identification and discovery company Gracenote, sold to Sony Corp. for $260 million. He also sits on the board of Mog, an online music discovery site.