Free content gives Zango big revenue boost

September 28, 2007

Once upon a time, TV was free. Cable all but ended that.

Yet free remains a powerful concept -- and a key to the success of Zango, a Bellevue online media company.

Think of Zango Inc. as the internet equivalent of an old-fashioned, over-the-air television network. Zango provides consumers free access to games, applications and entertainment in exchange for showing them advertising.

But consumers aren't the only winners. Web publishers and content producers also feel the love because Zango rewards them, too. In exchange for the rights to distribute their puzzles, videos, tools, etc., Zango gives them a taste of its ad revenues.

Sounds simple, but with consumers showing little desire to pay for online content, it's a sweet solution to the nagging problem of monetization. But that's not all. Zango also gives some sugar to advertisers by enabling them to target consumers at the very moment they're browsing related topics or shopping for related products.

"We solved the problem of how to compensate ... everybody in the value chain so content is free to consumers," said Keith Smith, co-founder and CEO. "Not a lot of people understand how to offer something to each category."

When Smith refers to compensating everybody, that includes Zango. Although the company does not disclose revenues, Zango recently completed its 24th consecutive profitable quarter.

Not bad for an internet business launched in 1999 on the eve of the dot-com crash. "We didn't have our timing right in the beginning," said Smith. "Just about everybody we did business with went out of business."

A "hedgehog" mentality enabled Zango to survive, said Smith. "We just hunkered down and said what are the one or two things we do that are making money right now."

Formerly known as 180Solutions, the company changed its name to Zango when it merged with another online media business, Hotbar, in 2006. The combined company provides access to a 100,000-item catalog of online content and serves an audience of 20 million.

While the content is free, consumers are required to pay a price of sorts. They must download a Zango Search Assistant. The Search Assistant delivers advertising to consumers as they're shopping or browsing by recognizing key words related to and selected by the advertiser.

Zango does not use pop-ups. Instead, it delivers the advertiser's website in a new browser window that is branded as coming from Zango. The technology is controversial and landed Zango in the center of Federal Trade Commission investigations as to whether the company used unfair and deceptive methods to download adware and obstruct consumers from removing it, in violation of federal law. The investigation wrapped in 2006 with a settlement. Still, the investigation hasn't slowed consumers' demand for content.

Joining Smith as co-founders of Zango are: Daniel Todd, president; Kenneth Smith, chief technology officer (and Keith's brother); and Doug Hanhart, chief information officer.

Zango's culture -- which empowers even junior employees to make decisions -- is as important as its technology, said Smith. "We all want to have fun and games, but it's not about fun and games," he said. "It's about being challenged and giving people the freedom to accomplish the goals set in front of them."