ChaCha (search engine)

ChaCha: the Story of the Defunct Human-Powered Search Engine That Burned $96 Million

 

ChaCha was a human-guided search engine. It provided free, real-time answers to any question, through its website, via text messaging, or by using one of the company's mobile apps. ChaCha was founded in 2006 by Scott A. Jones and Brad Bostic. Its name comes from the Mandarin Chinese word cha, which means "to search."

Today if you go on ChaCha.com, that is what you see:

chacha search

One of the first questions that popped to mind when I was diving into this story was: how a search engine that seemed so promising. A company that raised over $96 million of total funding and answered over two billion questions since its launch go defunct?

We're are talking about a company that claimed to have received $6 million in funding from Bezos Expeditions, the personal investment firm of Jeff Bezos. A company that claimed, "The ChaCha search system is so innovative that 18 patents have been filed in the first year."

I think this is a story any entrepreneur would like to read. Why? For how much we love to reverse engineer things. We also believe this sort of process is possible with success. The truth is most of the times we will know whether something would be successful just after a lot of tinkering and trial and error.

In fact, it's so hard to learn via positiva (by addition) as there are too many variables to take into account. The most effective way to learn in the real world might be via negativa (by subtraction). ChaCha's story - I argue - is one of those stories that as an entrepreneur you don't want to miss out.

USA Today tech columnist Kevin Maney saluted ChaCha arrival in 2006 with enthusiasm:

So the collective wisdom of the marketplace, i.e. all the people and money chasing new search business, seems to be telling us something. It's telling us that Google is vulnerable.

An entrepreneurial story ended badly after a decade of operations, the claim to take over Google; the ability to get over $96 million in funding from people like Jeff Bezos, and ventures like Qualcomm. This story taught me more about today's startup and entrepreneurial world than any success story I've ever read about.

I hope you enjoy reading it as much as I enjoyed digging into it!

Who is ChaCha's founder, Scott Jones?

He defines himself a World Changer:

scott jones linkedin

As columnist Kevin Maney recalls in his article about ChaCha arrival in 2006:

In the 1980s, he invented the digital voice mail system now used by half a billion people. In the 1990s, he built the CDDB database, which feeds song info into iTunes and just about every other computer music player.

Plus, Jones is a character: a big bundle of bravado, testosterone and Einstein brains. He's got an indoor treehouse at home. He's based not in Silicon Valley, but in Indiana. Which, of course, makes him the Indiana Jones of technology.

As reported in the same article, besides his "World Changer" job title, Scott Jones seems to be considered a tech visionary, which in 2017 sold all his stuff to leave Indiana for good. According to celebritynetworth.com, his net worth is $100 million.

In fact, During the '80s at the age of 25, Jones was a founding partner in Boston Technology, a company that pioneered voicemail technology. He also founded Gracenote, an online music company that is used more than 20 billion times a year; Jones sold that business for $260 million. Fifteen years later, Jones teamed up with three other businessmen to create Escient, LLC, a company that focused on technology and entertainment.

How did it all start?

In the same interview with tech columnist Kevin Maney Scott Jones seems to be clear about what didn't work with Google:

He's lounging in a chair across from me, the top two buttons of his shirt unbuttoned, telling me what's wrong with Google. Yeah, it takes Google two-tenths of a second to show you a page of results, Jones says, "But on average it takes people 11 minutes to find what they want."

Jones doesn't cite a source, but from personal experience, he's probably right. Searching on Google is like going into Home Depot to find a single 2-penny nail.

Industry watchers agree. Google is broad, stiff and impersonal, and, "You have to learn how it hears. It doesn't learn how you talk," says Chris Meyer, CEO of Monitor Networks and author of several books on technology.

Of course, in hindsight, it's easy to argue how fools were these words. However, back in 2006, updates to the search algorithms, such as Hummingbird and RankBrain (2013 and 2015 respectively) were still far to come. Thus, natural language processing and understanding that we give (almost) for granted today; it might have sounded like fantasy at the time.

However, it is worth mentioning some parts of this article just to have an idea on how numb we can be on how technology is going to evolve. This isn't to say that those people were necessarily foolish. But instead, the point is that it's impossible to predict how technology will look like a few years ahead.

The paradox is that some part of ChaCha's vision was based on mobile and voice search, which was ahead of his times. In fact, in 2008, Kgb offered to purchase the 2-year-old firm for $100 million, but ChaCha didn't accept the offer. However, the technology landscape was not ready for that kind of innovation yet.

How did Chacha work?

According to one of its press releases, ChaCha offered two options for searching -- one with a human guide who assisted you in real-time via an instant-message chat and the other option provided immediate search results that included instantaneous user-ranked results. 

In fact, as affirmed by Brad Bostic, president, co-founder, and CMO, back in 2008, almost 30,000 real human beings filtered results. Users could call 1-800-2-ChaCha (800-224-2242) from a cell phone or send questions as text messages from their cell phones and get answers back from ChaCha's human researchers.

In fact, those 30,000 people called "guides" could point to their profiles what topic they were most interested about. Thus, when a question got asked on ChaCha, users could be pointed toward these guides.

Those were people - Brad Bostic claimed - that had the knowledge to answer those questions. In short, paraphrasing Brad Bostic, it was like having a very smart friend at any moment answer any question. From the boldest to the weirdest, for free. Those guides got paid, starting at $0.03 per question answered up to twenty cents per question to enrich ChaCha knowledge base and answer users' questions. That doesn't seem a sufficient pay for allowing guides to living out of contributing to ChaCha.

As remarked by Brad Bostic at the time you could ask things as silly as "how many eyelids do camels have?" to get an answer within two minutes.

Nowadays this doesn't sound like a feat at all. If all this sounds silly. In fact, as of 2018, where Google has become pretty good at answering complex questions in less than a second you realize how worthless ChaCha would be by today's standards:

featured snippet Google

Also, other social platforms, like Reddit and Quora have sprouted up. Yet, at the time replacing humans with algorithms might have seemed a bold idea. In October 2008, ChaCha raised other $14 million of Series C investments.

As remarked by founder and CEO, Scott A. Jones
At ChaCha, we often give you instant search results that are better than other search engines,
But if you’re still stuck and searching for something a little more difficult, we can connect you with a live human guide in real-time who will assist you with your search, for free.
Was this taken seriously?
For now, I just don’t see how human guides can ever match Google or Yahoo search.
Apparently at the time pranksters took hold of ChaCha as reported in the same article:
I was also sent the screen shot to the left of a ChaCha search where the guide didn’t know what Digg was, and asked the searcher (original source seems to be here). You can’t expect the guides to know everything, since they’re paid $5 – 10/hour, but you won’t find Google asking you what Digg is when looking for a UK equivalent.
In short, human interactions at times turned weird. With a supposedly human-powered search engine able to answer any question, turning back to its users to ask them questions it couldn't answer. At times also your smartest friend doesn't know the answer!
Ok, we already knew humans are not perfect.
However, in 2008, when ChaCha expanded the service to include a mobile version, which allowed anyone to get an answer to a user's search via SMS, it made sense! Back in 2008 mobile connectivity wasn't the best. Thus, having the chance to get search answers through a phone was handy.
In fact, in 2009 ChaCha started to archive those questions and built up over 300 million databases at the time, which was available on their website. In some ways, it seemed to gain traction.
What about the business standpoint. Did ChaCha make money?

How did ChaCha make money? ChaCha Crazy Innovative Business Model Explained

Like any other search engine, ChaCha made money through advertising. In fact, when personal guides answered to users questions via desktop or mobile. Those questions got stored in ChaCha's knowledge base. That knowledge base available on the website showed advertising, which generated revenues.

In fact, in 2009 ChaCha became the most popular SMS search engine. As reported by Michael Arrington mobile questions also brought revenues to ChaCha:

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.

How much revenues?

Considering that ChaCha managed to lower the cost for the human guides at $2.50/hour and that part of the answers was recycled, the company started to get some traction and move toward profitability, as recounted by Michale Arrington:

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.

In 2012, ChaCha started to experiment to launch its service worldwide. It started from the UK in September 2011. However, even though in March 2011 ChaCha had reported 2 billion questions asked and answered, with 40 million unique users of the service, and the ability to raise $75 million in investments (including money from Jeff Bezos' venture). ChaCha had to shut down its operations in the UK. 

As recounted by at the time VP of operations Doug Gilmore:

Our mission was simply to provide quality answers at 1/15 the cost of the current competition. After months of direct advertising, branding events, marketing advice from UK leaders, and initiatives designed to help spread the word socially, we’ve found that adoption rates for new price-competitive services are quite low in the UK

This is how Doug Gilmore of ChaCha announced the shut down of its operations on the forum moneysavingexpert.com:

Dear UK Guides,

It is with a heavy heart that I announce ChaCha will no longer be offering our service in the UK and plan to stop incoming and outgoing texts on Friday, April 20th, 2012. This pains us because of all the hard work and dedication you have all contributed to the ChaCha service in the UK.

ChaCha began its UK service 9 months ago as an alternative to similar text-based services which charge premium rates for Q&A. Our mission was simply to provide quality answers at 1/15 the cost of the current competition. After months of direct advertising, branding events, marketing advice from UK leaders, and initiatives designed to help spread the word socially, we've found that adoption rates for new price-competitive services are quite low in the UK.

Any and all success we have had in the UK can be attributed to you, our Guides, who provided quality answers and helped us spread the word about the service. We would like to thank you for your service and support during the last 9 months.

Please note that we will process any and all remaining Guide funds from your ChaCha accounts and transfer those on Friday, April 20th.

With Warmest Regards-

Doug Gilmore - VP of Operations ChaCha Search Inc.

That's a shame 

If the UK didn't turn out successful. How could ChaCha get back on track with its mission to scale up the business?

No sustainable business model? Time to shut down operations

After a decade of operations, in 2016 ChaCha announced the shut down of its operations. Before that, in 2015 Scott Jones was looking for ways to land an offer from an investor and sell the company. However, when traffic - both on desktop and mobile - started to decline this didn't help:

Cha_Cha_fever

Sourceibj.com

What lessons can be learned from this story?

The boundary between vision and madness can be blurry

In the tech world, it's hard to say when an idea is visionary or mad. In fact, at times the difference between the two can be measured in terms of outcome. For instance, today people like Jeff Bezos and Elon Musk are the epitome of the modern tech visionary. However, had they not been so wildly successful one could wonder whether we would have called them visionaries. Or rather madmen!

Remember that one of the first investors of ChaCha was Jeff Bezos?  Also, ChaCha's founder, Scott James, believed so much in his idea to put $34 million of his own money into the venture. Today, we get inspiration from the boldness of Jeff Bezos and the fact that he risked his own family money to start Amazon, yet what if Amazon failed? Would we still take inspiration from Jeff Bezos' quotes?

Is an innovative idea enough?

Since the start, ChaCha has been identified as innovative. There's no doubt that in 2006, thinking in terms of mobile and voice search was innovative. However, is that enough to build a successful startup?

Even though ChaCha had a great idea of introducing the human variable into the search equation. That variable was not scalable and sustainable over time. In fact, ChaCha realized that when it introduced Wolfram Alpha.

Lack of scalability: Never getting out of the startup mode

Mike Burroughs, former director of mobile development, reported

It was a scaling problem. It was a cost problem,” he said. “The reality is … the guides didn’t get paid enough to make it worthwhile for anybody with any expertise to do it. 

Another issue was culture, at least in the latter years. The multiple pivots induced fatigue, some said, and employees spent long hours trying to get something right. By 2013, one former employee who asked not to be named said, “It was a long time for a startup to be in startup mode"

Is profitability overrated for a tech startup?

Even when a startup get traction, until you're not able to make a profit, you can't call it a business. Many believe this is the traditional way to look at modern tech startups. However, I believe profitability is still a critical metric to assess the long-term success of any business.

In fact, even though at one point (in 2012) ChaCha was making over $20 million in revenues it still hadn't figured out a way to be profitable. This isn't unusual in the tech world. For instance, Twitter, founded in 2006, reported its first profitable quarter ever just in Q4 of 2017 (however, annualized, the company still loses money). Over a decade from the start of its operations, and after its IPO Twitter hadn't yet figured how to be profitable!

Thus, the new business model for tech startup seems to have become: start with an idea, burn millions of dollars from venture capital firms, pay them back with an ICO, and monetize by selling stocks to a bunch of clueless fellows! 

This model didn't prove to be sustainable. Many might claim that also companies like Google had to go through a few years of trial and errors before figuring out how to monetize. However, when Google went public in 2004, it was already a cash machine!

chart-for-tc

Actually, Google was already profitable in 2011.

Therefore, until proven otherwise, even if you're trying to innovate, either you find a way to become profitable or you might be part of the tech bubble rat race!

Did the iPhone kill ChaCha?

There's no doubt that ChaCha's success was also compromised by the quick evolution of the technological landscape. In 2006, would have anyone envisioned the wild success of the iPhone just a year later?

Thus, an idea, which in 2008 seemed to make total sense (allow search by SMS) it wasn't so anymore just a few years later. In fact, as the technology landscape started to evolve at faster pace, an idea that seemed bright eventually became obsolete. This was even clearer when Google's search algorithm started to become smarter.

Did RankBrain kill ChaCha?

In 2012 Google started to work on ways to understand human language. In short, Google wanted to be able to provide accurate answers to complex queries from its users. This quest led to innovations, such as the knowledge graph in 2012. And Hummingbird and RankBrain in 2013 and 2015 respectively. Those search algorithms changes made Google way more powerful. Those also allowed it to consolidate its growth.

In fact, part of ChaCha's success was based on its ability to be ranked on Google's SERP. When Google SERP started to penalize the human-powered search engine, things turned awry, which leads us to the next point.

If you rely on your competitor's network, you'll soon be out of business

ChaCha had initially managed to scale up its operations when it started to create a knowledge base, with millions of queries that at the time was quite sophisticated for Google to answer. For instance, if we take Quora, a social network based on Q&A. As of today, Google relies on Quora to get some of the answers from its users.

Thus, back then it made even more sense. However, when your business model heavily depends on a competitor; sooner or later, you'll be kicked out. In fact, a simple Google's algorithm change meant a considerable decrease in traffic, thus revenues for ChaCha. Even though, platforms like Quora do have the same risk. They've built a community, which is strong enough to survive even if Google makes it hard on them.

ChaCha instead, didn't seem to have developed a strong community of users that allowed its survival. The paradox is that Q&A platforms like Quora, do not pay their contributors or writers to provide answers. Instead, they relied on a "social network" mechanism that leveraged on social proof and visibility, which so far proved successful (however at the time of this writing Quora doesn't seem profitable yet).

Although, today we're all "experts" about social media, at the time this kind of mechanism was not easy to foresee. Thus, had ChaCha introduced a mechanism based more on the social media rationale, rather than pure monetization, would have this been more sustainable? Well, in part they had contributors also. Nonetheless, it didn't work out.

No happy ending

I wish there were a happy ending to this story. However, as of now, there isn't. We are left with a few lessons that probably are worth more than any startup success story. This is the story of a tech visionary, that started out with a bold idea to take over the search industry dominated by Google.

It started with investments from other tech visionaries, like Jeff Bezos and companies with significant technological understanding like Qualcomm. It managed to raise dozens of millions over the years. It also seemed to be promising as it got an early acquisition offer for $100 million. The idea seemed to be scalable when ChaCha introduced Wolfram Alpha as a way to provide complex answers, quickly, at its users' base. It also created a business model that at its peak generated over $20 million in revenues. Then, the international launch in the UK.

Yet after a decade of operations, ChaCha shut down. All that is left is a colossal failure and a few precious lessons. I could have told you the story of how Richard Branson conquered adversity. How Elon Musk became a billionaire. Or how Jeff Bezos disrupted several industries.

Yet the only story I was able to tell you is about an original idea, which turned awry. And tech visionary Scott Jones selling all his stuff in his home in Indianapolis. Therefore, I'll leave the last words to him:

While failure is never a pleasant experience, there are many good things that can spring from it, as is constantly demonstrated in places such as Silicon Valley, where failure is sometimes even considered a badge of honor.

Other startup or tech stories

https://fourweekmba.com/duckduckgo-vs-google/

https://fourweekmba.com/stephen-wolfram-story/

 

Published by

Gennaro Cuofano

Creator of FourWeekMBA.com | Head of Business Development at WordLift.io | International MBA

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