How To Monetize a Q&A Site: Answers.com CEO David Karandish (Part 3)

Sramana Mitra: When you were going through this whiteboarding process of what your vision of what the company wants to be when it grows up, what was the financial situation of the company?

David Karandish: We were profitable. We were generating revenue. We were small, but we were doing each of those and we realized we were going to have to adapt and evolve. At that time, we didn’t have any registered users. We didn’t have any of our own unique content. We didn’t have any direct advertisers.

Sramana Mitra: If you could acquire something, the process would go a lot faster. That’s fully understandable. To be able to go acquire a major property, what kind of revenue levels were you going out to do that with?

David Karandish: We don’t disclose any of our historical financials, largely because we’ve got multiple companies and spinouts, but I can say that we were north of $30 million of revenue. We were profitable and in a position where we could start to go talk with these guys.

Sramana Mitra: North of $30 million in revenue means the story is missing pretty much all the details of how you get to $30 million in revenue.

David Karandish: Before we even get there, I guess the first question is how do you get to $1 of revenue.

Sramana Mitra: Yes, exactly.

David Karandish: For us, we figured out that if we could acquire a large audience on the Web, we could bring consumers into our websites and we could show them different types of content: articles, shopping listings, local listings, and ultimately questions and answers. We knew that if we put up targeted advertisements on those pages that we could generate revenue without having to have a giant sales team at that time. Rather than build out a big sales team and try to go call up all these big companies right off the bat, we partnered with the big search engines—Yahoo! and Google—to syndicate their ad products to us so we could, on a revenue share, split the revenue and earn more revenue for each of us.

That was the business model where we would go out and, through a combination of organic and online advertising, bring people to our websites. Then we would monetize those websites with a combination of advertisements.

Sramana Mitra: You were $30 million in revenue when you went out to acquire Answers.com?

David Karandish: I don’t have the specific numbers in front of me, but let’s just say 30 plus.

Sramana Mitra: Did you raise venture capital at that point to buy Answers.com?

David Karandish: We did a debt-financing round with Wells Fargo where we raised $100 million of debt, and then we had a little bit of cash on the balance sheet to buy Answers.com.

Sramana Mitra: And how much did Answers.com cost you?

David Karandish: $127 million.

Sramana Mitra: It sounds like you’ve been doing a rollup strategy there. What were the circumstances of Answers.com and why did they want to do this deal?

David Karandish: I don’t want to speak for the shareholders of Answers.com at the time because it was public, and you can’t speak for the public. But what I can say is that we came in at a price where we were paying a significant premium to their stock price over the last few months, and their board of directors looked at it and said they thought it would be a good acquisition.

At that time, you’ve got to remember Answers.com was about $20 million in revenue, as per the public information at that time. They were probably a little too small to be public. Today, the costs of being a public company are pretty large. It can be a couple of million dollars a year.

Sramana Mitra: There’s no chance to be a public company with $20 million in revenue. None whatsoever.

David Karandish: At that time, there were a lot less costs associated with being a public company.

This segment is part 3 in the series : How To Monetize a Q&A Site: Answers.com CEO David Karandish
1 2 3 4 5 6 7