When James Hong and Jim Young founded HotorNot in October, 2000, they had no real plans for the service to be anything other than a fun site for a few friends. They turned a free low end computer they received for setting up an etrade account into a web server, launched the site from their house in Mountain View, California, and emailed 40 friends. By the end of the day, 40,000 people had visited the site, which now had 30 second load times.
It wasn’t too long before the service was hosted at RackSpace and the users were flooding in to rate user-uploaded pictures of themselves on a scale of 1-10. In January 2001 they added a dead simple dating site. Instead of reading endless profiles and trying to find a connection, users just say yes or no to a given picture. If it’s a yes, the other person is shown your picture the next time they look through profiles. If they like you as well, a connection is made.
The Money Rolls In
Until last month, HotorNot was free until that last crucial stage when two people wanted to meet each other. At that point, one of the members (usually the man, Hong tells me) must have been a paid subscriber, which costs $6/month. Hong says their conversion rate was extremely high – 15% of active users eventually upgraded to premium accounts.
The premium revenue, plus advertising and fees for virtual flowers, soon topped $600,000 per month. Nearly all of that was profit for the two founders, who reportedly pocketed $20 million or so between them over the years. The company has never raised any outside funding.
Hong says they receive 2-3 emails per day telling them about marriages that resulted from an initial meeting on HotorNot.
In the last year though a few competitors have popped up (see yesnomayb, a copy of the business model) and a number of free dating sites also started to eat away at traffic. Traffic started to drift sideways, and the developers were getting bored at doing little more than site maintenance.
Going To A Free Model
That’s when Hong and Young decided to rip apart their business model and remove the requirement for members to have premium accounts to talk to each other. A month ago, the requirement was turned off, and about $500k/month in revenue disappeared overnight. The founders also turned the company into a proper “C” corporation and issued stock options for the first time to all employees.
(I can’t help thinking that if HotorNot took venture financing somewhere along the way, they would not have been able to get their board of directors to agree to this.)
Hong says this lit a fire under the company, which is now running on reserve cash of a few million dollars. So far things look good. Traffic jumped over 60% – 10 million people visited the site in the last month, up from 6 million the month before. Advertising and virtual gift revenue spiked, and the site is now break even even though they killed their largest revenue stream.
Hong and Young aren’t stopping there. They have plans to expand the site greatly and say they will launch new products in the coming weeks.
Whether this works in the long run is yet to be seen. But the company wanted to try something new, and the founders took enough money off the table to be comfortable for life. Entrepreneurs tend to have a screwed up way of measuring risk – the more the better – and these guys are no exception.
Epitome of Silicon Valley. Have enough fuck-you money so that we all can do whatever it is we want. Sometimes people are lucky enough they find a nifty problem to solve and sometimes they’re lucky enough to find a cause to fit into. At the end of the day this is just the dream we chase.
They could have been the first MySpace had they expanded their horizons.
Jim & James are great entrepreneurs & good peeps, and have put their hand to multiple wacky ideas & causes… cheers for trying to blow it up & [re-]start the fire all over again.
(altho isn’t James running the show over there these days… i thought Jim was working on his own new venture separately? could be wrong)
- dmc
Well, it may sound crazy, but I think that making the site 100% free was a brilliant move. The kind of move perhaps some investors wouldn’t understand.
#2, The first MySpace was Friendster
I love hot or not and will in the future.
—-
OLPC
This site should have always been completely free. Now all it needs is a redesign and some Web 2.0 collaborative features and like so many things on the net–what’s old is new again. Do those things and the next post about Hot or Not will be how much they were bought out for.
HotorNot was a cool idea when you first heard about it. For me it was in college, but the novelty wore off quickly, so much so, that I hadn’t been back since. I think what the founders are doing is great.
I love my 2.3 rating and I wouldn’t trade it for the world! I’m back baby! And so is HotorNot!
” No. 2 & No.5 – Friendsreunited launched in 1999 – before the likes of Friendster and MySpace
Great move! (y)
Wow, I never knew this site was such a huge success for them. Congrats to them.
they should have started a new website with the free model. it s as simple as that. you get the best of both worlds
I think they will make up their lost revenue with advertising deals and sponsorships within no time.
10 million eyeballs a month is no joke. I frankly would never go there, as I’m happily married already.
It’s nice that they can fund this by themselves, without wasting a bunch of VC money, but think of how much different this story would read if they didn’t have a pile of money laying around.
Would it be more or less exciting if they maxed out a dozen credit cards to take a chance on reinventing their site?
The burning question here Mike is how many Hot or Nots did you go through to get that picture of the nice blonde?
I remember back in the early days, one of our websites started getting hit thousands of times. We tracked it down to a picture of a female member of staff that had been submitted. Never did work out if people thought she was hot or not….
This is a great story, kudos for having the guts to cut the big revenue and take a risk. Hope it works out – this will be a move that ends up in books for years to come.
Jason Alba
CEO – JibberJobber.com
its a cool site but toospoiled has a better look and feel with better looking people on it!
That is such an inspirational story. All it takes is one good idea an a little ingenuity and you’re on the road to raking in half a mil a month!
Thinking cap – engage!
I’ve never been a big fan of that site. I remember seeing people who pick on/harass other people take photos off profiles on web pages and put them up there to embarass them. Like stalker stuff. Not cool.
It’s good that they’ve expanded what it offers, but the online dating niche looks like an uphill battle, and I think that hot or not attracts a very specific type – not somebody a lot of girls I know online would ever date.
Good going to them, but I’m surprised to even hear them written about.
I love hotornot and often visit the website. Some of the models are cool and some are…..you know it very well..lol
It was bound to happen – with the surge of social networking and more people using MySpace for the same “Hot or Not” effect. James and Jim really had no choice, but it must have been difficult to decide to literally turn down $500k per month.
On a related note: I met my wife on Hot or Not.
hahaha – I used to skip Orchestra in high school and rate all my weirdo friends who submitted pictures.
Should I submit a pic just for sh*ts and giggles?
In his blog, James talk about the thought process behind this change.
He mentions that the main reason behind this change is to stay hungry, get out of the comfort zone and grow the company.
http://james.ho...ing-hungry.html
Very interesting read.
This would be easy – if the site was / losing money going down the drain anyways.
– But they had – (have) millions at stake, lots of employees, and more millions in future revenue ..
– This seems stupid (Not broken? why fix it?) –
stupid is Genius – RB
Michael W: I think I just met my wife on HotOrNot too. I can’t quite make out the user ID number in the photo above though. Gotta link that up, Mike A!
hotornot will have a tough time growing with facebook and myspace. this is a desperation move. unfortunately too little too late.
if you want the real scoop check out what the founder of plentyoffish.com has to say about the online dating industry. his traffic is getting killed by the social networks, especially in Canada
http://www.plen...h.wordpress.com
ugly dude… That’s how they invented hot or not.
@BS meter: while i agree Plenty of Fish founder has very interesting perspectives, i don’t think i’d describe anybody with $10M+ in their pocket as “desperate”, regardless of the challenge / competition. possible they might not be hungry enough, but i think the corp restructure & options gives them the collective brass ring to go after.
simple fact of the matter is there is STILL A TON OF MO-NAY being spent on dating sites in various varieties, and a TON OF EYEBALLS spent on looking for love. while the monetization strategy may change from subscription to advertising to something else, the market opportunity is very large and i’m sure smart entrepreneurs who attempt to innovate in that space will find an interesting set of opportunities.
Add new features and by 2008 you can sell it to Google or Yahoo for $250 million.
I’ve seen them give lectures on their experience and they seem like two really brights guys who just wanted to have fun.
GJ
http://www.60in3.com
I see Mike rated that last girl a 1.
Gee…those are some amazing numbers for one day!
“emailed 40 friends. By the end of the day, 40,000 people had visited the site”
HoN was truly a viral site when it first launched. I remember looking at the site a few years back and thinking how fun it was. Their innovation was a great contribution to the social web and paved the way for many sites of today. HoN may have been the first site that I rated something online.
Doug Dosberg
http://www.nextwebstar.com
I missed this site.
@ali : 10 million eyeballs per month? do you mean they got 10 million cyclopes visiting their site? Last time I looked, most humans have 2 eyes. Sorry to pop your bubble bro.
Kudos to James and Jim.
Having cross paths with James a few times while working on BubbleShare, I can also echo the words above (see comments in TechCrunch posting) about these guys being genuinely good human beings (anyone that’s spent any time with James will tell you the same). Now they have show me that they are good human beings with balls. =)
It takes a lot of courage to walk away from something that is making good money and pursue something that may have the potential for money. No matter how much FU money you have IMHO.
There are few who know the feeling first hand, those of you that have done it before will know what I’m talking about. These guys have balls.
http://snapshot...om/hotornot.com
shows hotornot having less than 800k (US) uniques/month, 24% less than last year – to claim 10M uniques/mo for that site is just silly.
Snapshot, Alexa, etc are all easily capable of being off by a magnitude either way in terms of traffic. They’re horribly unreliable so I’d watch how much stock I put in them, Tim.
I love the fact that they didn’t take VC money and have been riding this fat cash cow for the past 7 years. HorN is so simple and fun, it taps a basic human behavior and wraps a basic service around it.
great write up as well. Also, I couldn’t help but notice that Alaska Miller #1, had a glimmer of optimism in his comment today, amazing!
Bold move, guys!
very informative article Micheal, thanks!
Great article… Very few Web startups should be taking VC money if they can help it. Develop in the garage… that’s what we’re doing.
Cheers,
chrisco
Good luck on this one. Reinventing and still being successful is always admirable.
I worry how they will handle the Facebook juggernaut. Facebook is the only site I’ve seen other than Google where *everyone* I know in real life uses it regularly.
Something thats really hot is the new Google Analytics interface. Its super cool.
Dating sites are great money makers. Most of them charge the guys but not the girls. IOW it’s always ladies’ night. It’d be cool to rake i the cash like these guys, but that rub is that you have to run a DATING site: yuk.
So do they just make money off of ads now?
You got sick people in this planet!!
Stalkers, Shemales, Pedophile, Sex manic, and full of horny boys can’t control themselves. Sick people!!! even old man would listen to britney spears song and wear lady stockings & heels. That’s 100% fact in today’s society.
Can people fix the way they are?
Don’t know…
I’m glad to hear that HotorNot is trying to reinvent themselves, but is it too little too late?
It’s never too late! My 2.3 is slowly, but surely moving up. 3.0 – here I come!
Loved this story, it’s amazing how small it all starts.
RackSpace? How is that relevant to their business venture? Besides, HoN is currently colocated at 365 Main, so that factoid is way out of date.