ChaCha was created by Brad Bostic and Scott A. Jones.  ChaCha is a mobile question answering service that transformed their business multiple times.  They started out as a search engine where humans would help people find their results.  Then it turned in to a mobile calling company where you tell an automated guide what you are looking for and someone will send you a text message with the answer.  Now you send text messages to them and then they text message you back.

The company has $43 million in funding from Jeff Bezos, Indiana’s 21st Century Technology Fund, Morton Meyerson, Scott Jones, Simon Properties, and other undisclosed investors.

Brad Bostic, co-founder of the company is stepping down as the President of the company.  He will not be replaced according to TechCrunch.  He will remain as an advisor and strategist to the company.  It is likely that Bostic had become fed up that the company has not been profitable even though they have laid off one-third of their work force.  Although the company is not profitable, they are cash flow positive and there has been consistent growth in the audience.

ChaCha’s latest round of funding was in March 2009 and that is when they announced a major reduction in staff.

ChaCha used to be a search engine with guides, but now it is an SMS service that finds answers to custom questions.  Last summer the company reduced the salaries paid to the guides that find the answers to the questions to about $0.10-$0.20 per answered question.

The company has raised an additional $12 million in funding.  They will be using this investment to expand local and national advertising sales.  The company has also opened an office in New York.  So far the company has raised about $43 million in the last two years.

“This funding is a tribute to the strength of our service and the continuing rapid growth of the mobile search and advertising market, stated ChaCha CEO Scott A. Jones. “Our solid position in this space will help us focus on attracting more advertisers that want to reach today’s mobile generation, a group that is beginning to make buying decisions based on what they see on their mobile devices.”

Even though the company raised additional funds, ChaCha will be reducing headcount and overhead in order to save costs.

[via ChaCha press release]

ChaCha, the world’s first human powered search engine is nickeling-and-diming the guides that are the heart of the company.  ChaCha has raised about $16 million in funding within the last year and a half and cannot get a solid business model going.  According to TechCrunch, good ChaCha guides make 20 cents per answer given to those who want to search and bad ChaCha guides make 10 cents per answer. 

Let’s say that an average guide can answer 30 questions in the span of an hour, given that the traffic is there.  On the low-end, the guide will make $3 in an hour.  On the high-end, the guide will make $6 per hour.  This is less than minimum wage in all of the United States that have minimum wage laws (except for Georgia, Kansas, Wyoming).

Clearly the guides and potential guides aren’t happy about it.  On a message board of ChaCha guides, here are some of the comments:
- “I just started this last week and I’m pretty disappointed. 15 cents is a stretch but 10 cents is definitely not worth the time.”
- I kinda eyerolled it when I saw the note in my e-mail. It’s understandable that they want every Guide to be dedicated to the clients, but you can’t rally the troops and then cut some of them off at the knees if they’re not getting “volume”.
- One of the reasons I have not gotten on board yet is I did the math and figured out that it takes 500 answers to earn $100 at $.20 each. At 3 minutes a question, that’s 20 questions an hour, it would take 25 hours to earn $100! That’s ridiculous! I’ve seen some comments on here that you should be able to do many of them in a minute, and if you averaged 40 questions in an hour, that’s $8/hr, which is minimum wage here in CA. That’s not bad, but there’s no guarantee you will be able to do that many questions, and if you’re in it for the money (which, face it, we are), you could get a job in the mall or anywhere else and have the money guaranteed!

I’ve seen ChaCha change their business model so many times that it’s not even funny any more.  Perhaps ChaCha should use their funding and build a real search engine that doesn’t depend heavily on constant underpaid manual labor.

Related Links:
1. TechCrunch

About two months ago I wrote about how you can get your questions answered by ChaCha when sending a text message to 1-800-224-2242 (1800-2CHACHA).  Today ChaCha has an additional feature to use with that phone number.

Now when you actually call the number instead of text messaging it, a ChaCha guide will answer the phone and search the web to provide solutions to your question.  The service is free and available 24/7.  The question must be asked in English in order to get a formal response back.

“ChaCha’s new voice capability pushes the boundaries of mobile 411 beyond its historical name-and-address limit” stated Greg Sterling, principal of Sterling Market Intelligence.  “It represents a next step in the evolution of the industry from directory assistance to voice search.”

This feature is called callChaCha and it was launched in beta testing around April 2008.  ChaCha was funded by Bezos Expeditions, who also recently funded Twitter.  ChaCha raised over $6 million in funding to date.

ChaCha has shifted away from their chat room model about 2 months ago.   ChaCha is crazy.  What will they think of next?  If anyone tries out the call service, please leave a comment about your experience with callChaCha.

“Thanks for using ChaCha’s experimental mobile service. What is your question today? *beep*”
-ChaCha’s Automated Voicemail

ChaCha has shifted their strategy. ChaCha was known for having a chat room with guides that help you search for items. Now ChaCha has automated search through the use of automated text messaging and an 800 number. ChaCha’s number is 1-800-224-2242 (1800-2CHACHA). You tell the automated voice a question such as where can you find certain restaurants.

Here is how my first session went with them.
Amit to ChaCha (9:57PM): Where can I find an Applebee’s in downtown Minneapolis?
ChaCha text msg response (9:58PM): Welcome to ChaCha. Your phone just got smarter. Ask away. Your first answer will come shortly. Other charges may apply. Send HELP for help. Send STOP to quit.
ChaCha text msg response (9:58PM): ChaCha is working on your question: Where can I find an Applebees in downtown Minneapolis? You should receive an answer in a few minutes
ChaCha text msg response (10PM): Applebee’s 5277 Central Ave. NE Fridley, MN

The service seems to be working functionally, but not accurately. Fridley, MN is a city that is about 10 miles away from downtown Minneapolis. 1-800-GOOG-411 seems to have better results in terms of finding restaurants. However, Google’s 411 service is not as smart.

With ChaCha, you can ask the automation specific questions like, “Who was the first President of the United States?” And about 3 minutes later, ChaCha would send you a text message such as “On April 30th, 1789, George Washington took his oath of office as the first President of the United States.” ChaCha gave more than I asked for which is great.

ChaCha’s new service makes my smartphone even smarter.

“Search with a Guide” will no longer be offered by the company, but ChaCha guides can work as Voice Transcribers or Text Guides. The non-guided ChaCha search will still be available at ChaCha.com and will be known as ChaCha Classic.

Information Source:
[1] TechCrunch: ChaCha Ditches Guided Search Model. I Love To Hate This Startup by Michael Arrington

“It is rare to find a company offering such a game-changing disruptive equation, even in the context of giants like Google, Yahoo and Microsoft.  Having had the opportunity to work with the entire ChaCha team, I am especially impressed with the caliber of people driving this groundbreaking company,” stated Morton Meyerson.  “I am excited for ChaCha’s future potential and think its plan to build upon its human-powered search engine to develop a mobile answers application is brilliant.  ChaCha is absolutely in the right place at the right time in a multi-billion dollar industry that is ripe for innovation.”

ChaCha is a search engine that has two ways to search for web sites, news, images, videos, and audio.  The first way is to search manually with your own keywords. And the second, more innovative search option is to “Search With Guide.”  This is where someone that works for ChaCha will attempt to try to understand what it is that you are looking for and send you some web site suggestions.  However, I noticed on TechCrunch last night that the Search Guides often times seen as unreliable.  People that choose the Search With Guide feature are often time pranksters.  Another bad point about ChaCha right now is that the search engine has seen a major traffic drop in the last few months.

Despite the aforementioned shortcomings, investors are still interested in ChaCha.  Yesterday ChaCha announced that they have received $10 million in Series B funding.  About $8 million came from Morton Meyerson, former Chairman and CEO of Perot Systems and former President of EDS.  The other two million was from Indiana’s 21st Century Technology Fund.  The Series A in funding at $6 million came from Jeff Bezos (founder of Amazon.com), Rod Canion (founding CEO of Compaq), and Jack Gill (founder of Vanguard Ventures and partner at Maven Ventures).

Meyerson will be joining ChaCha’s Board of Directors.  In response, Scott Jones, CEO of ChaCha was quoted below:

 It is an exciting time for us.  We have been building a unique infrastructure that will completely change search as we know it.  We will soon unveil the next generation of search that will be the ultimate manifestation of the power of our special human-powered approach.  We are thrilled Meyerson is behind our efforts and look forward to his support and input.

ChaCha has a long while to go before it can fully be considered a competitor of Google.  And of course pranksters and the traffic drop are major problems with ChaCha right now.  But ChaCha has potential to be something great and thats the only thing that counts in the start-up world.  It is one of the most innovative search engines I’ve seen so far. 

Search engine, ChaCha and Big 10 Univesity, Indiana are collaborating to create a reference desk to connect students with search experts.  Indiana University students and faculty will have access to resources provided by IU’s librarians and info-tech staff via ChaCha.

“We’re experimenting with some of the cool things we can do when we apply human intelligence to all that’s the best of the university’s Internet,” stated Scott Jones, a ChaCha co-founder and IU alumni (class of 1984).  Founder of Amazon, Jeff Bezos invested $6 million in ChaCha in January 2007.

ChaCha utilizes two types of search: instant and live guided.  Instant search works just like a Google or Yahoo! where relevant web sites end up at the top of the search result pages.  Live guided is the more innovative type of search created by Chacha where a real person (guide) will chat with you and understand what exactly you are looking for.  ChaCha currently has about 30,000 guides.

Recently, the New York Times had published an article entitled, ‘In Silicon Valley, the Race is On to Trump Google.’ One of the search engines mentioned includes ‘People Powered Search,’ ChaCha Search. Scott Jones and Brad Bostic created ChaCha based on their lack of satisfaction with other search engines that produce irrelevant search results.

ChaCha’s homepage is slightly similar to Google’s homepage when Google first came out, but the unique feature that ChaCha has is its ‘Search with Guide’ feature. When searching with a Guide, the keywords that you choose to search for are sent to real people who are quick at finding relevant information on the Internet, so that it finds the right pages that you want. When searching for certain questions, Guides that are presently logged on are alerted and the Guide will start searching for the information as long as it is not profane, is specific, and gibberish is not written. There is a chatroom where you can speak with the Guide. Guides are paid directly with their performance.

To test out the Guide search, I wrote the question “What is spam made of?” and a Guide by the name of MelissaB answered the question in the form of relevant search results within 30 seconds. Below is the screen shot of the results. The very first search result answered my question accurately. I am now a satisfied user of ChaCha and can see the service going far.

By the development of this new form of search that involves direct communication with Internet search experts gave enough of a reason for ChaCha to raise a $6 million round of investment from Jeff Bezos and other individuals [Source: GigaOM]. Jeff Bezos is the founder of Amazon.com and Bezos Expeditions. Bezos Expeditions has also previously invested in 37signals.