Mahalo (Part I)

Jason McCabe Calacanis: I want your attention!

With my blatently transparent plea out of the way, I considered bombarding you with e-mails, tweets and phone calls. However, mine would barely distinguish themselves from the herd of messages aimed in your direction on any given day producing a limited return on my efforts. Instead, I am telling Mahalo’s story in two parts: objectively with information I’ve compiled from TechCrunch (60%), various tech blogs (30%) and other websites (10%); and skewed based on a conversation with yourself. In addition, I am not trying to linkbait - a simple DM to my twitter account (@economist) would be appreciated to start a dialogue.

And now, on to the featured presentation.

Textbook entrepreneurs love their companies, spending countless hours creating their respective enterprises. This dedication transcends their respective industries whether it be service; retailing; wholesaling; or manufacturing. Every entrepreneur has a story that they will share with any audience willing to listen. Some are grandiose tales of unbridled success leaving dead-end jobs to follow lifelong dreams and others are deeply rooted stories about generational family businesses. Most of the entrepreneurs I have spoken with began with a modest amount of capital financed by personal savings, family members and/or friends. They became successful by working hard and building equity in their original investment.

When I joined quirky mircomessaging twitter in April 2007, it was mostly filled with technology geeks, internet lovers and idealistic entrepreneurs. This created a nerd utopia enjoyable to watch, but the overt idealism became tiresome to a cynical corporate ladder climber such as myself. Most people in my position would quickly lose interest and return to their Facebook-powered safehouse, but I stuck around. Twitter in 2007 provided an intimate network to mingle with industry leaders and learn the technology industry free of charge.

Technology entrepreneurs share similar qualities to those I have previously come across, with one staggering difference. Technology companies are historically funded through venture capital and private equity firms, selling pieces of their company for an immediate influx of cash. This capital allows technology startups to quickly build an infrastructure for their creations and prove their worth in a dog-eat-dog industry. But an unfortunate side effect to this model are boisterous sales pitches bloated with egocentric conjecture.

When I first read about Mahalo, I assumed Jason McCabe Calacanis was a par-for-the-course technology entrepreneur. He confidently touted Mahalo as a human powered search engine but remained vague as to what the classification meant. However; I completed my due diligence and discovered Calacanis was a veteran in the technology entrepreneurship space experiencing mixed results. His first company, Sillicon Alley Reporter, was a glossy magazine focusing on internet technology in New York. But Sillicon Alley Reporter folded due to a lack of advertising revenue, and was repackaged as Venture Reporter and slowly disappeared. Calcanis’ second company was blogging network Weblogs, Inc, co-founded with Brian Alvey in September 2003. Providing financing for the company was Dallas Maverick’s owner Mark Cuban. Weblogs, Inc. grew to approximately 90 weblogs before its sale to AOL n November 2005 for a conservatively estimated $25 million. Through acquisition, Calacanis joined AOL and became General Manager of Netscape shortly thereafter. Calacanis stuck with AOL until then-CEO Jonathan Miller’s departure. Per TechCrunch, Miller was “one of the few mentors [Calacanis'] had in [his] life”. Shortly after his departure, Calacanis became an Entrepreneur-In-Action at Sequioa Capital. This chain of events and those involved lead to the founding of Mahalo, but I will touch on that shortly.

At inception, Mahalo was a modest directory of hand-curated search results supplemented with Google to backfill common search needs. Mahalo drew striking similarities to web portals already existing at AOL and Yahoo, which feature landing pages rich with daily news updates and home grown content. Further reading was supplied by Google and an outdated proprietary search engine at AOL and Yahoo respectively. Technology journalists were critical of Mahalo citing the company as a poor implementation of decade-old technology. To be honest, Mahalo was a distant cry from the human powered version of Google those same experts thought Mahalo should be. Calacanis stood his ground against skeptics and maintained that Mahalo would be successful. Since search is not my expertise, I didn’t care whether Mahalo is groundbreaking or a carbon copy of outdated websites. What intrigued me were evident similarities between Mahalo and a product Calacanis’ was developing while General Manager of Netscape.

Below are quotes from Michael Arrington as made on his technology blog TechCrunch.

AOL-Netscape Launches Massive “Digg Killer”

It’s not exactly a Digg clone (home page screenshot here). Submitted stories are voted on in much the same way, and the more votes a story gets the higher it appears in a category home page or on Netscape.com itself. However, the top few spots in each category and on the home page are determined by an “anchor” - essentially an editor choosing from stories moving up the ranks.

There are 30 topical channels, from “Art & Design” to “Women”. Eight full time and eleven part time editors will manage the site, determining both the top stories as well as staffing a 24×7 chat room where users can discuss stories in real time.
June 14, 2006

Jason Calacanis Launches Mahalo Today: Human Powered Search

The service has features that are similar to the new Netscape news finder product that Calacanis launched last year at AOL: expert guides will determine the most relevant results. The main search results are provided by guides (Mahalo employees), who find relevant results for search terms. User submitted results are also included.

The primary results for search terms are included at the top, in a “top seven” area. These are hand picked results from the guids that should all be good results for the query (see screen shot below of results for “Paris Hotels” - click for larger view). To the right of the results are “Guide Notes” which include additional information including relevant additional searches and “Fast Facts.” In the case of Paris Hotels, the “Fast Facts” include the country, language, currenty and telephone country code.
May 30, 2007

While these similarities could be viewed with ill-intentions, it is a matter of AOL going in a different direction under new management and Calacanis taking the opportunity to launch his startup in the aftermath. Prior to Calacanis becoming General Manager of Netscape, it was a mainstream news portal with 500 to 800 million monthly page views. With that amount of traffic, reinventing Netscape was a large risk for AOL. On one hand, AOL knew how much advertising revenue it could generate from Netscape in its existing form. But decision makers saw trend(s) that justified handing the keys over to Calacanis for an overhaul. In hindsight, traffic dropped off (it’s important to read the comments), users revolted and Netscape was restored to its old form after Calacanis left. An AOL executive cited the reason as users expecting to find a traditional news portal on the Netscape domain. The Digg clone that Calacanis created was to be moved but was not heard from again.

With Calacanis gone from AOL and his digg clone buried, a door opened for Mahalo to take its spot. It has been my experience that previous success; which Calacanis achieved with Weblogs, Inc, provides investors with confidence to fund additional business ventures. Despite the questional business decision of where AOL let Calacanis launch his Digg clone, the reasoning behind it could be justified. It was a web 2.0 play for everyday internet users well before soccer moms and elementary school principals turned Facebook mainstream. And Calacanis had an impressive group of financiers to get Mahalo off the ground. They include Sequoia Capital, Mark Cuban, Ted Leonsis, Jonathan Miller, and several media companies. For those unfamiliar:

• Sequoia Capital is a well-known venture capital formed by Donald Valentine. Sequoia Capital invests among a wide range of technologies including software, computer systems and semiconductors. Notable companies receiving capital from Sequoia include Apple, Google, Oracle, PayPal and YouTube.
• Mark Cuban is the founder of Broadcast.com (which Yahoo bought for $4.6 billion), HDNet, and owner of the Dallas Mavericks. Cuban is an angel investor for several startups.
• Ted Leonsis is vice chairman emeritus of AOL, joining through acquisition of his marketing company Redgate Communications Corp. in 1993. Prior to his retirement in 2006, Leonsis held several positions within AOL including Audience Groups President.
• Jonathan Miller also worked at AOL, serving as Chairman and CEO from 2002 to 2006. He was brought in to restructure the company’s core business lines, choosing an online advertising focus. Through his leadership, AOL delivered record annual profit growth and increased its online advertising. Calacanis counts Miller among his few business mentors.

In summary, Mahalo was funded by the venture capital firm housing him after he left AOL; an investor in Weblogs, Inc. who received a successful exit; and two former AOL executives who were likely involved in the decision to purchase Weblogs, Inc. and put Calacanis in charge of Netscape. IMHO, this demonstrates a vote of confidence in Calacanis and his ability to build Mahalo into what his Netscape revitalization never became. Total funding for Mahalo was approximately $21 million (although I can only confirm $16 million from one non-descript article), and was expected to last four to five years.

Since its inception over two years ago, Mahalo has evolved the term “human powered search” into a multifaceted community site that pays its members for their efforts. In a nutshell, Mahalo encourages participation in return for advertising revenue share and contributions from members willing to pay for the expertise of other members. Per the site itself,

Mahalo is a human powered search engine, all information you find on Mahalo is all created and/or curated by the members of the Mahalo Community in exchange for Mahalo Dollars. There are three main money making components to Mahalo, each is relatively unique and users can participate at their own leisure in each area. Here are the three main Mahalo answers you will need to become familiar with.

1. Mahalo Answers: This is the main community hub, users use this to ask and answer questions about Mahalo and anything else that comes to mind. There are daily contests and active users earn dollars by providing the best answer to questions. Here is a list of the top earners within Mahalo Answers.
2. Page Management: Search results on Mahalo are built and and managed by Mahalo community members. Mahalo compensates the manage with 50% of the advertising revenue. Here is a list of the top earners since the program begin in June 2009.
3. Mahalo Tasks: These are small pieces of writing work that Mahalo editors need completed, Mahalo members can claim the task, then get paid for it’s completion. There are often contests centered around Tasks as well. There is no leaderboard for this yet, but some say it’s the most lucrative attraction for those looking to earn dollars.

To demonstrate how Mahalo works, I have used a recent story on Michael Jackson and you’re brought to a wiki-styled article. Everything is connected with click throughs to Michael Jackson’s personal page, ADD-inspired bullet points for the story, links to traditional news stories and questions about the story served by Mahalo’s Answers product. And the mix of creators and consumers has translated to nearly 10 million unique visitors in August. I started bootstrap | economist two and a half years ago while I was transitioning jobs in my professional career. I had every intent on building the site into a megasite for banking news and opinion, but scarce updates and no marketing has left bootstrap | economist a vapid wasteland. In August, I had 85 visitors which is 1 for every 111,000 visitors to Mahalo.

In my humble opinion, this formula has turned Mahalo into a news and entertainment portal with a delicate human touch. Although the site generates modest revenue today, an advertising partnership with Microsoft or Google would put Mahalo on track to pay dividends to its investors and stakeholders. In Part II I will discuss how advertising revenue will expose the latter half of Mahalo’s business model, who potential acqusitors are and how I anticipate Mahalo’s products would fit into their plans.

Posted on September 9th, 2009 | By: bootstrap economist | Filed under Web Technologies

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