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 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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