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Following a week’s worth of back and forth and blown off interviews, including one scheduled at 11 p.m EST, Chatroulette founder Andrey Ternovskiy finally picks up his cell phone after several rings. It’s early in Palo Alto, California, and Ternovskiy’s voice is soft and raspy. He sounds like he’s still half-dreaming. “Just a second–I can’t talk very loudly because there are people sleeping in my room,” he whispers in his Russian accent. “Alright, now I’m outside.” The evasive, confined lifestyle isn’t what you’d expect from Ternovskiy. Only months earlier, the 18-year-old had entertained drooling interest from the likes of Digital Sky Technologies and Fred Wilson, turning down million-dollar offers for his popular video-chatting service. The site was rocketing in popularity. Nearly every major media outlet wrote about Chatroulette. He met with the New York Times. Good Morning America explained his service to middle America. He got the feature treatment from New York magazine and The New Yorker, which gave him 4,500 words. But six months later, the fickle followers of Web fads have collectively hit the “next” button. Since peaking in usership in the spring and early summer, Chatroulette

has been hemorrhaging traffic, with visits plummeting close to 60% in

the US, according to Quantcast. After a brief down period in late August, the site relaunched with improved saftey features, and traffic appears to have bottomed out.

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Ternovskiy now shares a one-bedroom apartment with two

engineers that doubles as Chatroulette’s headquarters. They all sleep and work there–that’s why he’s whispering and slipping outside to answer his phone. The million-dollar offers have dried up,

and critics have labeled the service a passing craze. Others have blamed the site’s decline on its pornographic content–it’s estimated one in

every eight chats yielded R-rated material. Ternovskiy still believes he can reclaim Chatroulette’s prominence and VC interest. To do so, he’s worked tirelessly to sanitize its image. “Since we’ve implemented the content-control system, the

site has become cleaner, and more people are starting to use it,” the founder tells Fast Company–traffic did begin to rise in October and November. “Now it’s my job to

shape the business into something more sustainable.” But Chatroulette can’t fully wean itself off nudity yet. “You’ll still see some naked men, about one every hour,” Ternovskiy says. Of the roughly 500,000 visitors Chatroulette receives daily, about 10% are males itching to show their business. So Ternovskiy parlays that business into profit. “Everyday, about 50,000 new men are trying to get naked,” he says. “What we’re doing is selling the naked men to a couple of websites–it’s an investment for us.”

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When users flag someone enough times for indecent behavior (by clicking a button), the offender is automatically transferred to a partner site. Thanks to deals with adult dating services like FriendFinder.com, Chatroulette is earning cash hand over fist from the referral traffic. “Basically, once we detect a person is naked, he’ll be kicked from our service to another website,” Ternovskiy says. “So, we’re actually getting revenue from naked men right now.” These exhibitionists were a major headache for Ternovskiy before becoming a major source of income. Though helping to create buzz on the site initially (for better or worse), they were also a bandwidth drain, often nexting through as many as 800 users in just 15 minutes. According to Ternovskiy, Chatroulette is now earning $100,000 per month due to its refined business model and content-control system–all from “naked men.” That’s triple the site’s monthly “mainstream” or “normal” revenue, as Ternovskiy refers to it. It’s also Ternovskiy’s answer to whether he’d finally accepted outside investments. “50,000 naked men” has become “our investment,” he says. “I just didn’t want to take investments–I feared that if I did the deals, my ideas would get pushed away. There are still offers, but they’re valued proportionally less than offers back then, in terms of our traffic. So I think at this point, it’s better for me to go on by myself.” Is he worried Chatroulette’s novelty has worn off, leaving it to survive as an adult referral service? Does he regret not taking the offers he had on the table when they were significantly higher?

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“It’s really hard to say. I do believe the novelty has changed, even for me. It was like a movie: Everybody watched it, and then everybody else. Well, now that they’ve all watched it, they’re less interested,” Ternovskiy says. “After I declined the offers, I realized it was very difficult to execute something myself. I think I would accept the offers now, because I’m much more educated about it. But I’m not sure things would be better if I took the offers back then–I think traffic would’ve gone down anyway after the investment.” But the Moscow-born, high-school dropout isn’t dwelling on the millions of dollars he might’ve lost. Living with his two coworkers in their one-bedroom, Ternovskiy is on a steady schedule: eat, sleep, and develop Chatroulette. (“Somebody needs to code, somebody needs to program, someone has to work,” he says.) Last week, his team introduced a new feature called “skins,” which provides alternating themes to the site’s background. The blogosphere immediately lambasted the feature–as if the site needed more “skin,” many joked–and criticized Ternovskiy for introducing such a basic upgrade. “It was just a minor change–it was five minutes of developer work,” Ternovskiy retorts. “They made a joke of it–the idea was that Chatroulette sucks, you know, but I like it. I like the negative publicity because it gives me the freedom to work–I don’t feel like I’m under a burden.” We hang up. Ternovskiy presumably settles in for a long day of coding with his roommates. Then an e-mail from him shows up shortly after our chat. He wants to make sure nothing he’d said would be misinterpreted. “We are not desperate for investments,” he wrote. “We are enjoying independence.”