CHACHA: THE FUTURE OF INFORMATION?

Industry-leading advertising-supported game developers have felt the adverse impact of unscrupulous advertising-supported game developers, and we believe information service providers do--or will--face similar reputation-related issues concerning the quality of information they deliver. There was a tremendous backlash in the US in the 1990s as competitive directory assistance providers entered the market using lower quality listing information, some of whom delivered accurate results only two-thirds of the time. As a result, "telco quality" listings became the standard, and the accuracy of successful directory assistance providers now remains in the 90% range.

We are reminded of a sign we once saw—answers: $ 0.25, right answers: $ 1.00, dumb looks: free.

Issues of accuracy become increasingly important as newspapers--historically, the purveyors of objective information--reduce staff and, in some cases, close altogether.

ChaCha's promise to "provide answers, for free, to any question, anytime, anywhere," is simply more than it is able deliver. Here's a simple example.

We called ChaCha at +1-800-2-ChaCha and asked the automated attendant "how much money has ChaCha raised?" We heard an advertisement for AT&T--one of ChaCha's partners--and received an SMS reply shortly afterwards, that read:

"ChaCha heard ur Q as: 'how much money has Cha Cha raised' Stay tuned!"

Within a minute we received a second message:

"You'll have ur answer b4 u know it! 'The Fray is touring this summer! Would u like to get ur tix before they go on sale in Virginia? Rply VAPRESALE"

Shortly thereafter we received this:

"ChaCha makes money from the companies they advertise for. Thanks for doing the ChaCha! *The Fray Presale! Txt TIXVA"

While we don't expect ChaCha's service to provide any inside or proprietary information, ours was a softball question--we would expect them at least to deliver accurate public information about themselves. This information would include, at a minimum, the fact that ChaCha announced this week that it has secured US$ 12 million in equity financing to expand its local and national advertising sales activities, including a newly opened New York office.

Regarding this announcement, Scott A. Jones, CEO of ChaCha, said “this funding is a tribute to the strength of our service and the continuing rapid growth of the mobile search and advertising market."

ChaCha's announcement did not identify who made this new investment, so it is entirely speculative as to whether previously announced investors have re-upped and whether new investors have come on board. Previously announced investors include Bezos Expeditions, the personal investment firm of Jeff Bezos; Morton Meyerson, former President and Vice Chairman of EDS as well as Chairman and CEO of Perot Systems; Rod Canion, founding CEO of Compaq Computer; and Jack Gill, Silicon Valley-based venture capitalist.

In addition to announcing the new investment, ChaCha announced it is streamlining and restructuring itself to preserve its cash. The company is reducing headcount, overhead, and expenditures through a series of cost-saving actions to ensure the company is positioned for long-term success. VentureWire estimates that the company laid off 25 of its 81 employees. ChaCha reports that it delivers 30 million impressions per month and has had 3.6 million users since their launch in January, 2008. Last year, ChaCha reported having over 35,000 guides who had answered over 30 million queries since their launch.-Stuart Whitaker