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Summary:

It was three months ago when HotorNot, a San Francisco-based people-ratings-and-dating site, decided to drop its subscription-based model, and instead opted for a free-ad supported model. So far, if eyeballs (and modest profitability) are the metrics, then the risky bet seems to be paying off for […]

It was three months ago when HotorNot, a San Francisco-based people-ratings-and-dating site, decided to drop its subscription-based model, and instead opted for a free-ad supported model.

So far, if eyeballs (and modest profitability) are the metrics, then the risky bet seems to be paying off for the company that survived one bubble and greeted the next one. While the jury is still out on the reboot, HotorNot is moving in the right direction.

In his latest blog post HotorNot founder James Hong says that HotorNot’s traffic has doubled in the past three months to about 20 million page views per day now. The revenues, expectedly, tanked from over $5 million per annum, but the company still remains profitable, with most of its sales coming almost exclusively from Google Ads. Hong says that as HotorNot builds out its sales force, it will get back to its pre-free revenue models.

Going free has helped the company overcome another challenge: finding and retaining talented employees. The subscription business meant status quo for Hong and his co-founder Jim Young, where steady checks translated into a lush life.

With the tech industry in the toilet, that cash could also make it easy for him to hire smart, young and talented people. The very kind of people, who when the market turns, go out and chase their dreams. The wheel turned, the cost of doing start-ups plummeted and people started to leave to strike out on their own.

The company changed into a traditional start-up, offering employees an incentive to stay at the company by offering them an equity in the company. Hong says he is about to take some additional steps to transform the company. First one is rewarding innovation by the employees.

…they’ve even built 2 major Facebook apps (Moods, which has almost 2 million users in only 3 week, and Pets, which has 200k very active users). Both of these products may be spun-off as separate companies in the future, with employees involved likely keeping a substantial amount of equity in order to give them a majority of the control and a majority of the upside.

While there are no plans to turn HotorNot into a lab or an incubator, Hong thinks that if the employees come up a good idea, “we should let it run free.”

“But the company’s primary focus is still on HotorNot, not on developing other things, we just happen to do that as a side effect of being a place the encourages innovation again,” he wrote back in an email.

Reading his post, I got a sense that Hong and Young had self-disrupted themselves. Self-disruption is the way out for an innovator’s dilemma, Clay Christenson wrote in his best selling book. Good to see that at least some of the newer web entrepreneurs are not merely chanting the mantra, but actually practicing it.

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  1. LA Entrepreneur Wednesday, June 27, 2007

    I think switching to a free model is an excellent idea. HotOrNot actually invented an entirely new class of sites, and its their constant adaptation and innovation that has helped them survive so far.

  2. cheers to james for taking on more risk & super-[re]charging the business.

    he’s a great entrepreneur, and a great person, and he deserves all the praise in the world for disrupting & reinventing himself & HotOrNot.

    you go girl!

    • dmc
  3. Revenues tanked and now dependent exclusively on Google Ads. How is this a step in the right direction?

  4. I’m glad to see that free sites like hotornot and plentyoffish are getting the respect they deserve, though neither one is revolutionary. I am trying to change the way singles interact online… though until I start posting a million dollar adsense check you will have to take my word for it. “No respect I tell ya, no respect”

  5. tim,

    good question.

    the revenues could have vanished, and the whole move would have a massive disaster.

    but they are slowly making up lost revenues with ads, and it is still keeping them profitable. as they grow their sales force, hong thinks that ad revenues will ramp.

  6. James is right a good ad sales force may be able to make him a bunch of extra money.

    Google adsense is pathetic these days, if I hired a decent ad sales staff I figure I could make $30 million off ads pretty easilly with Plentyoffish.com. But turning a hobby site into a actual business is going to be hard for me.

  7. Jim and James are free to do whatever they want but clearly the better call is to let a $5m/year cash cow run itself. 98% of the US workforce works for dollars, not equity. How hard could it possibly be to find an employee or two to answer emails and reboot servers?

  8. Top Posts « WordPress.com Thursday, June 28, 2007

    [...] For HotOrNot, betting on free is paying off It was three months ago when HotorNot, a San Francisco-based people-ratings-and-dating site, decided to drop its […] [...]

  9. LonelyBloggers Friday, June 29, 2007

    They’ll do fine. The brand is strong enough to survive the transition and perhaps with some additional functionality the revenue won’t drop off.

  10. The revenue will definitely drop but it is a way to get more visitors and members. I assume profit is not that important for James now…

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