Searching For Answers Corporation

Web 2.0 is awash with advertising-driven revenue models. Answers.com (ANSW) has grown quickly on the back of numerous trends: meta-dictionaries, blogging, aggregation and what I like to refer to as the Google (GOOG) Effect: stand back in awe and watch the after-effect of some good Google love. For the uninitiated, Answers receives much of its traffic from the ‘definition’ link where Google currently links (in an informal, non-contractual way) to Answers’ pages for definitions based on a list of trigger words.

Looking at average daily queries growth (the average of how many searches are conducted on Answers.com), we see impressive numbers. Traffic has grown 88% when comparing Q1 of 2007 over Q1 of 2006.

Web publishers tend to use the RPM metric (Revenues per thousand web pages served) as a measure of success in monetization effort and Answers is making good strides: 35% growth in RPM this quarter versus first quarter 2006. Things are looking good. While RPM growth is strong, it’s clearly lagging query growth. I’d like to see this catch up.

And that’s the rub.

The interesting thing here though is that while Answers.com’s content model is very much Web 2.0, its revenue model isn’t. Ad sales models are built on old-school principles: buy low, sell high. Admittedly, Answers needs to ramp up its sales efforts and execute. Managing a sales team is good for the business but is definitely not sexy. It costs money to hire good talent and takes even more time to manage them efficiently.

I won’t even get into the reliance on Google for traffic and monetization efforts. Google has Answers by the proverbial short-hairs and perhaps may eventually take them out. Until then, I’m nervous that Google plays such a crucial role in bringing the eyeballs and then monetizing them.

I love Answers’ service. My kids and I use it for book reports, science experiments (my daughter wanted to put an iPod in Coca Cola), and just good research. From my perch, Answers is now a show-me stock dependent on the good graces of Google and the execution of a sales team.

ANSW 1-yr chart

Comments

[Frank Li:]

Interesting article. Quick question: when you said that you'd like to see RPM keep up with query growth, did you mean total revenue? Because if RPM is flat, total revenue would grow in line with the number of page views.

2007 May 29 10:36 AM

[Zack Miller:]

Sorry I wasn't clear, Frank.
Clearly, RPM (Revenues per thousand pageviews) * M (Thousands of pages views) = Total Revs

All I was trying to say is that I wanted to see the delta in RPM more approximate the delta of the page view growth. It's clear that Answers.com (ANSW) has an execution problem and I'd like to see their RPM growth improve -- that's all.

2007 May 29 10:54 AM

[Frank Li:]

Thanks Zack. Any opinion on ANSW's valuation? What metrics/ratios are you using to judge it?

2007 May 29 04:51 PM

[akindman:]

"Web 2.0" suggests user participation, data-sharing, social networking, etc., and Answers.com doesn't qualify.

2007 May 29 06:48 PM

[User 176917:]

Does anyone else think that Answers Tips is cutting edge (or should have been for a long time now) and that everyone private and business would want the convenience of using it???????????????

2008 Apr 11 07:08 PM