Redeye VC Josh Kopelman beat me to it, but indeed, everything that is old is new again.
Let’s get a few things out of the way:
Jason Calacanis is one helluva promoter. Between Silicon Alley Reporter and Weblogs Inc. (the latter which sold to AOL for $25M), Calacanis has a unique track record. Let me also say this: Jason - who posted about the launch on his blog - might very well succeed in a few ways because he’s got willpower en masse.
That track record - we think - is what prompted an all-star cast of investors to invest in Mahalo, his latest venture that he’s been working on since January 2, 2007.
What is Mahalo?
Mahalo - meaning Thank you - is essentially a new venture-backed player in search, directories and navigation. It’s in fact a contrarian play in the space, arguing that human beings can do a better job at finding what people want than technology.
For the record, we think in theory this makes sense, but by the time you finish updating the results page for a given keyword, the results are outdated, or worse, listing dead links.
A who’s who list of investors
The investors range from my old employer News Corp., to lead investor Sequoia, along with VC superstar Fred Wilson (not sure if this was as an individual or on behalf of his fund Union Square Ventures), along with random investors like German-based publisher Burda (yes, the Burda your mom laid out for you), deal-happy CBS, X.com/Paypal shareholder/spaceman Elon Musk and of course, Mark Cuban who seems sold on Calacanis.
We don’t think, for a New York minute, that any other entrepreneur would have been able to raise the amount of money that in JC’s words will allow him to “to run the company for at least five years without any revenue.”
Rumor has it he raised $20M on a $100M valuation, according to an earlier report on Valleywag, who has developed a strong accuracy rating of late…
It’s a good thing, because every possible factor suggests that Mahalo will flop. Will it? Well, not so fast. I swear that we’re not being critical, this post is actually a
- Jason Calacanis is in a league of his own for having convinced people that this could work AND
- Jason Calacanis is one of a handful of people to make this work.
I don’t dole out compliments like this, so to dole it out, I must be somewhat critical on some blaring problems I have (and we’re not alone):
But make no mistake about it: for investors to get a positive return on this will take a Doug Flutie-esque hail marry miracle. More on this below.
Let’s proceed:
a) Been there, done that
Mahalo comes across as a cross between:
- About.com and
- Magellan
We know About.com. Magellan faded into oblivion for many of the reasons that the odds are stacked against Mahalo.
But, the flip side is, MySpace was Geocities 2.0 and it’s the most successful startup of the last 10 years - Facebook euphoria of the past week notwithstanding.
Moreover, all directories ceased to exist and paved the way for algorithsm: Looksmart bought Wisenut, Yahoo! bought Inktomi. There was a reason for that, no?
b) Mahalo seems way too labor intensive to pass any test of common sense.
Google crushed everyone because of, well, the algorithm. Ask flopped because it did not have one (despite the new, eerie ad campaign Mr. Diller). Yahoo! too suffered because it lacked an algorith. Magellan vanished.
The trend, clearly, is that the pace of content being created FAR outstrips any rate of indexing by people. Which takes us to the next point.
c) Mahalo is not a search engine, it’s a directory…
Which is fine, but this begs the question: why not call a duck if it walks like one, quacks like one, etc. Because ducks are oftentimes lame and Calacanis does not want to associate his new puppy with multiples bestowed on directories, but rather, search.
Don Dodge recently posted about how 1% market share in search can translate to $1B-$3B in market value. Well, Google has 55% market share, Yahoo! 27%, MSN has 10%, Ask about 5%, AOL ditto, which means that the remaining 45 in the top 50 have 1%.
Will Mahalo be able to get even 1% by that magical 5 years before it runs out of money?
Probably not. But Calacanis has the track record to prove us all wrong… though I’ve written before that search seems to be mankind’s hubris. Why else would Wikipedia founder Jimmy Wales risk his Midas reputation on Wikia, something that confuses even the most reputable of media?
Considering how tight this space already is - plus the entries of players like Powerset, Wikia, and of course, MetaMojo.com (yes, I’m kidding, sort of - read disclaimer at the end) - within five years, Mahalo might at the very most get 1% market share. Since it won’t be a destination, in Jason’s own words, then he won’t command the $1B market share Don Dodge outlined, but closer to $500M, at most, IN FIVE YEARS! And that’s IF he hits 0.5% market share. But pause for a second and ask yourself how many companies in search are worth $500M despite being in search for decades: Infospace? Enterprise value of $250M. Answers.com? On Google’s results page… market cap? $120M. Looksmart, the original directory: $47M enterprise value. Mamma? $60M. Here’s a rundown of search players I posted just yesterday.
The search destinations #6 through 50 command 1% folks! So IF Jason can ramp this up - despite no distribution - then this will be worth $500M, in theory. That, people, assumes a decent monetization strategy. But if Jason is planning on riding his entity without worrying about revenue, them cut that in half, at least, if not more. The investors probably came in at a valuation touching $100M. If they think this is a good risk/return ratio, more power to them. Just wait until more money is needed for staff, rent, etc.
Problem? Jason has 40 staffers - not IT folks - but artists essentially (based on the description), burning through the VC money. To get into the black, this puppy will need more money, since the demand for Web talent is increasing, particularly in places like the US…
Which introduces problem #2: Jason should have focused on global, and not US search/advertising. Yet his plans call to focus on what Americans search for. That’s nice and dandy, if the gameplan was being drafted, well, in 1996. Quick example of what I mean: Canada has 1/10th of US’ population, yet US commands 16x the ad revenue. That will converge over time. The openings are in global, non English markets.
What Mahalo will do, probably, is make a lot of noise with the blogger community, the digerati and technorati but the masses - those who made google a verb (hence the lower case) - won’t care because Jason Calacanis is as familar to them as Mahalo is. Of course, Google wasn’t a household name either, but that was back in 1999 when search was boring and everyone was leaving the space. ’tis not the case today.
But we’re not boosters here, we’re trying to offer candid observations, and on the surface, the only thing Mahalo has going for itself is Calacanis himself.
If you doubt me, ask yourself this:
- How different is Mahalo from Chacha, fundamentally?
- How different is Mahalo from the 80% of startups that Michael Arrington covers with brazen bravado and hoopla, only to disappear or end up in the deadpool? Here’s his coverage of Mahalo, by the way.
The Web, clearly, is becoming a cess pool of sorts, because there is no logical reason why such marquee investors would back a labor-intensive project like this.
Frankly, Jason just confirmed something that I’ve realized. Unless your sole motivation is money, as an entrepreneur you are better off selling your company, securing a nice exit, and moving on to the next great thing. Had Calacanis held on to Weblogs, sure, he could sell it for more, but the currency of saying “I’ve pulled off a successful exit” is worth more than money. And, as a side note, the currency of saying “I was the founder/CEO in an exit” is miles greater than just being on the executive team… but we’re sidestepping way too much.
In fact, in the very best case scenario, Mahalo will be a version of:
- Wikipedia and
- Netscape 2.0
Ironically, Calacanis was running Netscape, and if he could not make that into a success despite AOL’s billions, how could Mahalo - with no distribution - survive? Distribution is everything in search. Ask is trying to get is by advertising. Google did it via Yahoo! Wikia has a chance - if it sees the light of day - due to Wikipedia’s traffic. What’s Mahalo’s plan? Even investors like CBS and News Corp. will balk at using Mahalo on their portals because in the former at least, Google is paying a whopping $900M to power ads.
I’d like to reiterate, every few paragraphs, that Calacanis can make this work. Weblogs was not an obvious model either, but he made the numbers add up. The problem, was that Weblogs was content, this is not. For this to work, it needs distribution, and I just don’t see it happening.
Mahalo, is, in fact, a contrarian bet on web search: while Powerset, Podzinger, and the many other search engines try to improve on technology, Mahalo turns a blind eye, arguing that 24% of the top searches are a result of the top queries. Perhaps, but staying on top of those queries is a freaking challenge. Mahalo’s top results will within weeks become irrelevant.
We’ve put in a request for an interview, will keep you posted. We don’t think JC will give us one, which is a shame, because we genuinely want Jason to do well… it just put MetaMojo.com into play as a very valuable asset. After all, we index a million times more pages than Mahalo does… and we swear, even if we didn’t run MetaMojo.com, we’d write the exact same thing.
Disclaimer: Mojo Supreme, our parent company, runs the MetaMojo.com vertical search engine, not quite a competitor of Mahalo, since, well, it’s actually a search engine. Jokes aside, its high-quality results, retrieved from best of breed sources based on the category would make a nice addition to Mahalo - and any search engine’s - results page. But my point was: distribution is key, we use MetaMojo.com in the Mojo Supreme network and that has helped search queries skyrocket. Without a distribution angle, any new search engine is DOA, in our humble opinion.
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May 30th, 2007 at 11:18 pm
Very well written with a good history lesson. Bravo
May 30th, 2007 at 11:49 pm
On the frivolous site, I think the plumeria flower has got to go.
http://livepaola.wordpress.com/2007/05/31/mahalo-launches-alpha-plumeria-flower-has-got-to-go/
May 31st, 2007 at 1:56 pm
[…] HipMojo affronta i nodi critici dell’impresa evidenziando alcuni aspetti curiosi (Calacanis come sorta di anello di congiunzione tra vecchio e nuovo web) e stilando un verdetto piuttosto impietoso (ancorché condivisibile) per Mahalo (grassetti suoi): In fact, in the very best case scenario, Mahalo will be a version of: […]