Mahalo

Mahalo
Mahalo
is probably the most interesting company I've seen in a while. I'm betting this is going to be a huge success – much more than most people realize.

Last week I said exactly that to a couple of VC's that asked me what I'd invest in personally these days. By the WTF?! looks on their faces and the questions that followed (below) I understood that I've been eternally disqualified from giving them any investment advice… 😉

  • "Why invest in a company with zero technology that relies entirely on expensive human labor?"
  • "How will they ever compete with Google with all their PhD's, and algorithms, and servers, and $$$'s?!?!"
  • "Isn't this the failed Ask Jeeves all over again?"
  • Etc, etc.

Disclosure first: I have no connection to Mahalo whatsoever. I don't know Jason Calacanis personally, have never met him, and don't know anyone else involved in this company. I have no insight beyond seeing what's up on Mahalo.com

Here's why I think this is going to be big big big:
The best thing that ever happened in search is obviously Google. And for a while (2000-2003ish), Google's search results were way better than anything else – AltaVista, LookSmart, AskJeeves, etc. But it's growth was also it's biggest curse – the whole world became obsessed with manipulating Google results using SEO[1]

Today Google's results are very reasonable on average. C+ or even a B- . On the more commercial terms there's a ton of crappy link-farm, AdSense-infested pages, while on the longer tail of queries the results are usually pretty good.

Google, doing what it does best (=develop huge-scale infrastructure and algorithms), keeps innovating at a furious pace and constantly improves its search algorithms and spam filters. In classic Innovator's Dilemma fashion, they're doing an incredible job on improving the stuff that made them so successful to begin with…   

Mahalo in contrast is doing something seemingly stupid – paying human beings to create the perfect search results for the handful of queries that matter (=the ones that get ~70% of the search traffic). The most common mis-perception is that they are competing head-to-head with Google, and that doing this manually is not scalable. The truth is, I don't think Mahalo is in any sort of arms race with Google… Google is already taking care of that piece itself by spending huge capex on constantly growingly sophisticated algorithms and infrastructure. Mahalo, like Quigo (my company), is playing in the same field as Google is, but they're playing a completely different game. And that's the beauty of Mahalo.

Mahalo's assumptions are simple:

  • 70%+ of the search queries are on a tiny # of terms (10's of thousands at most).
  • An intelligent human being, given enough time, can *always* create a better search result than any algorithm currently can.

Google's incredible infrastructure is the world's greatest machine for providing a fairly good response to *any* query that anyone submits to it. Algorithms are great for scale, but they are a game of compromises. They're blankets that when pulled to cover one problem, expose different problems in completely different places.

That is the big disruption opportunity that Mahalo is betting on. They're never going to compete with Google on processing power, or algorithmic sophistication, or the handling of long tail of sites or long tail of queries. If I were Jason, I'd happily leave those nasty headaches to the Google (/Yahoo/Microsoft) geniuses to solve. Those issues aren't getting any simpler, so they are guaranteed to be a huge resource sucker. Arms races are never a very good business model for a startup.

Mahalo has identified the huge pile of low hanging fruit and is going to pick it up. If Google's pitch to the users is "We'll get a fairly good response to *any query* you hit us with", Mahalo's pitch will be "We'll guarantee you a *great* response for the majority of your queries. For your other queries we hole-heartedly recommend using the long-tail experts – Google/Yahoo/MS/etc"

As with the Innovator's Dilemma, Google & Co will have a difficult time emulating this because it would essentially mean taking a 180 degree turn from what has served them so well up until now – convince the whole world that their search algorithms are superior to everything else. My guess is that they'll counter Mahalo with improved search algorithms, better personalization algorithms, better spam filters, etc, etc. This may work, and it might not. After all – at the end of the day these are all just blankets.

Jason Calacanis and Mahalo have the opportunity to be the first true disruptors in the search business since Google came along and ate everyone's lunch. The fact that many folks, like those VC's I met, don't get this just makes it an even bigger opportunity IMHO because it means people (like Microsoft and PowerSet) are still going to try to one-up Google which is stupid to do against the best one-upper in the world today. The real disruption will come from "one-downing" Google like Mahalo is doing.

Should be fascinating to see this happen.

If I were a VC – I'd be on my knees begging Mahalo/Sequoia/Jason/whoever to get in on this deal.

If I were Google/MS/Yahoo – I'd try to buy this while it's young, or at least put some money in it now. Don't let the NIH choir pooh-pooh this….

If I were looking for a job at one of the search engines – I would definitely go to work for Mahalo[2] and not one of the dinosaurs.

[UPDATE: posted some more thoughts about search engines here]

——————
[1] Funny thing is that the biggest driver of  all the SEO crap is
Google's AdSense which actually let all these people profit from the
Google traffic… but that's a story for a different post.

[2] …or Quigo. The interesting stuff and the biggest potential upside is with disruptors like Quigo and Mahalo (or Google in '99). We currently have 19 open positions listed. Come change the world!

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  • Oz Har Adir| August 27, 2007 at 5:17PM

    This post took me all the way from thinking that like Cha Cha, Mahalo is not going to get any added value to the scene, into realizing that this is a very smart project that would succeed in any market and would surely remained unanswered for a while by the larger SE. I guess that some VC would realize that too some day, probably after the valuation of the firm would reach sky high.
    Very well explained!

  • Yaron Galai| August 28, 2007 at 8:08AM

    Cool – thanks for stopping by.
    We tend to always consider great technology to be superior to anything else, but great technology sometimes leaves wide open holes for disruption by scrappier players. I think Mahalo is a winner.