Challenges of US Mobile Search ... ChaCha in trouble?

US human-powered search engine ChaCha Search is reportedly having financial difficulties according to comments on TechCrunch et al, as rumours arise that employees (ie. their 'guides') are at minimum being offered significantly reduced search rates or even not getting paid:

With a USD10m funding round in November of last year, the company announced its plans to mount an early 2008 launch of its beta-stage search software for use by web and mobile customers where its staff would hand pick sites of interest. The company has since focused its efforts on an all-mobile service, abandoning a web-based interface prone to misuse by pranksters, and a total of USD16m has been raised by investors.

There were reports last month that ChaCha was cutting its pay rates in half, following the introduction of a new pay-for-performance remuneration scheme designed to improve search quality. It now seems the company is in deep financial waters, with anonymous employees reporting that they are not getting paid.

Critics have been saying that the company's business model was ill-conceived and unscalable from the start, something that is often thought to be an issue with search engines directly answered each time by humans.

StrategyEye comments

I've never entirely understood ChaCha's financial model and I'm sure they have developed technology that allows a proportion of their questions to be answered automatically (ie. their database of prior questions should allow this to a degree) and hence theoretically continually lowering the per-Q cost. However, if the figure of 30,000 human 'guides' is right then it suggests that the number of questions that are automated is still probably a very tiny fraction.

Then there is the simple fact of who actually gives them money (ie. revenue ....) - given it's now a largely mobile driven business it seems odd that they are not charging premium SMS rates for the service yet - surely something that has been possible for a long time with the likes of mBlox and MX Telecom being active in that market for a long time - although perhaps ChaCha can't offer a premium rate across all the network operators it claims. Or it used it's $16m VC pile to offer the service gratis to build up regular users in lieu of marketing - slightly dangerous game when it comes to switching them to charging models.

In the UK there are a couple of services - Texperts and AQA - both of whom offer text services  for a £1 or so premium SMS rate charge and can answer in theory any question. You also have 118 118 starting into the game with heavy TV advertising - and probably the need to work with a player like Texperts or AQA who has the automation down to a tee already rather than trying to reinvent the wheel.

It seems from my understanding of the opportunity there are a few models that MIGHT work (as people do definitely appreciate the service right now ...):

• Premium SMS billing
  • $1++ for a question
  • less operator cut (say, 30%)
  • less 20c to the human 'guide' (10c in the case of 'non-expert' guides)
• Advertising
  • Sponsored responses - "Brought to you by Guinness"
• Licencing Technology
  • Licencing into 3rd parties to use:
  • - licence question analysis / routing technology and database into telcos / directory services wanting to offer the service
  • - licence into companies wanting to offer their customers a dedicated query service (eg to airports allowing customers to query whether a flight has landed etc)

Errr, that's probably about it but am sure there are more lateral ideas.

Defensibility might come from being able to tap into premium content databases (eg. sports results or live train times or hotel availability) that are simply impossible to find easily online but the key issue is whether these companies can move fast enough to counter what is happening on the next generation of smart phones ... even with my BlackBerry (let alone the ease of an iPhone) I can now answer most of my average 'life support' questions when on the road through Google for less than a few cents worth of Vodafone bandwidth ......................................

Comments

[Erica]

With that many guides already and they are still in beta stages it hardly seems like ChaCha is having financial trouble. Just wanted to mention that I got a response from ChaCha the other day with a Coke advertisement at the bottom. Looks like they are going with your #2 option! If they go that route I don't see why they would have to charge premium rates, the fact that it's free attracts a lot of people.

[Nick]

Yes - Erica, that's very interesting. I'd love to know what the rates they get are though for those ads ... very personalized (in theory) to the question being asked but it's difficult to see how they can scale that up to cover their underlying costs. It's something that the players in the UK are looking at as well as the other options (in particular licencing tech).

Looking to the UK, AQA is rumoured to be profitable already on premium SMS so room for all options to have some play ... AQA is known to respond with more "humorous" responses than other services, even if they don't have the exact right answer which again appeals to a certain set.

The key again for me is how this will work in the world of the true smart phone ... my view is that these companies have (or had) a window to sell themselves into the big players (on basis of their technology and understanding of audience experience on mobile) but that this will close fast and so they have to think laterally. They are essentially pitched as "daily life support services" for people on the road that need to have the right answer quickly and don't have time to search on Google, particularly as on old phones the experience was terrible ... something that will change with the next generation of devices ...