Adam L. Penenberg
Fast Company, 9/2007
IT’S A SUNSHINY SUMMER DAY — CALIFORNIANS JUST CALL it “weather” — but Jason Calacanis is air-conditioned cool in his new Santa Monica HQ. He’s hosting his weekly audio podcast, CalacanisCast, which gets upward of 30,000 listeners a week. Addressing call-in guest Brian Provost, a “search-engine optimizer” who gooses Google search results for a living, Calacanis recalls “a seminal blog post. I think it was ‘Jason Calacanis: Charlatan Douche Bag.'”
“My favorite,” says Provost.
“You also said you were going to knock me out at one point,” Calacanis adds.
“Nah, I said I was going to cut somebody a check if they knocked you out.”
Calacanis smirks. Barely 5-foot-9, the 36-year-old serial Web entrepreneur is a black belt in tae kwon do who grew up in the famously gritty Bay Ridge section of Brooklyn, where violence was as ubiquitous as graffiti. As a kid, he was tossed out of school for fighting and mopped blood off the floor of his father’s bar; his mother, an emergency-room nurse, would stitch up the combatants at a local hospital. It was a real family affair.
He introduces his next guest as the author of “Don’t Trust Jason Calacanis.” Then he welcomes a third search-engine optimizer, or SEO, Andy Beard, who dialed in from Poland. “You’ve written some great ones,” Calacanis tells him. “Like ‘How to Build a Biased Self-Propaganda Machine.’ A classic, classic post …”
It was, Beard says, “probably one of my most favorable posts for you.”
“One of your nicer ones,” Calacanis agrees.
It’s all so convivial, made more remarkable by the fact that they all can’t stand him. But you can’t blame Calacanis’s guests for wanting to stick it to him. He routinely blogs about his plan to put them out of business, calling SEOs “slime buckets” who are nothing more than “snake-oil salesmen” and “low-class idiots” who are “polluting” the Internet with “spam” sites. They are the ones responsible for “index spam,” which, at its worst, tries to trick search-engine Web crawlers so that a page about romantic holidays in Bordeaux ends up redirecting users to a site where they can purchase Viagra. For Calacanis, the junk they push is the equivalent of the penile-enhancement and penny-stock scams that clog your email inbox.
To take these guys down, Calacanis is betting on his new online search engine, Mahalo (“thank you” in Hawaiian), which recently rolled out with $20 million in venture capital from a bevy of blue-chip investors — Sequoia Capital (original backer of Yahoo and Google); News Corp.; CBS; maverick Mark Cuban; and Elon Musk, the founder of PayPal, SpaceX, and now chairman of Tesla Motors, builder of the $100,000 iPod of electric cars. That high-tech breeding stock notwithstanding, Calacanis’s new venture is pure old school. He’s not unleashing some spicy new algorithm to power Mahalo. He’s using people. The company’s motto: “We’re here to help.”
Of course, hiring humans to do a machine’s work may seem more Web minus 1 than Web 2.0. But people know what other people want in a way a math equation can never intuit, like getting a living, breathing voice instead of an automated call system when you dial tech support. And for SEOs, it’s a lot harder to fool flesh and blood than to snow a machine.
At the end of the radio show, Calacanis wagers his “gray hat” guests they won’t be able to insert a “spammy link” in Mahalo.
No one will take him up on it.
And that’s the thing about Calacanis. Only a sucker would bet against him.
Not everyone hates Jason Calacanis, although for those who follow the latest skirmishes in the blogosphere, it may seem that way. The former publisher of Silicon Alley Reporter (it crashed and burned with the dotcoms) and the man behind Weblogs Inc., the blog syndicate he sold to AOL for a chill $25 million two years ago, welcomes any and all comers to the round-robin slugfest that is his online life. He posts his cell-phone number and email address on his blog, priming the flow of conflict. Not even his bosses are spared: While an executive at AOL, after the Weblogs purchase, Calacanis publicly advised his bloggers to quit if their new corporate parent tried to censor them — and bashed AOL’s own search engine, calling it “bad, very, very bad” from a user’s perspective. And he was right.
Calacanis’s archrival, Gawker Media tycoon Nick Denton, once described him as “brash,” “ballsy,” “publicity-hungry,” and “the Web’s answer to Donald Trump,” all in the same paragraph. Calacanis prefers to think of himself as honest, authentic — and there’s truth to that. He may dish it out, but he’s admirably thick-skinned, a necessity in the Hobbesian world of blogs, with its nasty, brutish, and short commentary. Calacanis is indeed transparent, but not only in the sense that his motives are clear (they are: He wants to get rich enough to buy the New York Knicks), but because he doesn’t hide what he thinks. As perennial pal Douglas Rushkoff, author of Get Back in the Box: Innovation From the Inside Out, puts it: “Jason would never stab you in the back. He might stab you in the face, though.”
The Calacanis saga has been rehashed so often it’s like a Web junkie’s version of E! True Hollywood Story. Calacanis is the working-class kid who started a grimy, 16-page, black-and-white newsletter, The Silicon Alley Reporter, that he’d stuff into newsstand racks when no one was looking. Early on, he realized there might be a healthy business in providing publicity for New York’s burgeoning tech community. And in a dazzling display of catch-22 logic, he knew if these Alley dotcomers became important, he would too — because he would be deciding who was important. His cynicism paid off nicely: Within five years, he was pulling in nearly $12 million in revenue.
With the money pouring in, Calacanis became a schmoozer nonpareil. He rented a loft, threw parties, organized conferences, and published a West Coast version of the magazine. Both Rushkoff and Calacanis held season tickets to Knicks games, Rushkoff sitting a dozen rows in front of his friend. But the ever-restless Calacanis never stayed in his seat long. “He’d start out the first quarter sitting behind me,” Rushkoff recalls, “but he’d invariably see someone he knew — a dotcomer, venture capitalist — and by the second quarter would end up sitting in front of me.”
By January 1999, as the market was about to peak, Calacanis and Rushkoff sat next to each other on a plane. Calacanis had just been offered $20 million for the Reporter and its associated conference business. But he was torn. Not yet 30, he was still a true believer.
“Take the money,” Rushkoff advised. “This is going to end.”
Calacanis didn’t listen, and when the market tanked so did his business. “Imagine being 30 years old, thinking you were a media titan,” he says, “and now you are labeled a scam artist. It made me want to prove they were wrong.”
Calacanis began laying the foundation for his second coming. Realizing that some of his best writers from the Silicon Alley days had taken up blogging, he decided to take the plunge himself. But he wasn’t just going to start his own blog. He would create an empire made up of dozens — if not hundreds — of one- or two-man publications. If Calacanis had 100 blogs each making $100,000 a year, he’d have a $10 million business. As part of his due diligence, he sought out Denton, who had shown what was possible with the success of Gawker (gossip) and Gizmodo (gadgets). The two met over lunch in SoHo, exchanged pleasantries, and Calacanis told him of his plans.
Soon afterward, the bickering began. Denton took to his own blog, calling Calacanis a “boom-time hype merchant” who “has reemerged as a blog booster. God help us … the last thing the world needs now is his brand of late-1990s enthusiasm.” Calacanis retaliated by trying to steal Elizabeth Spiers, who’d built Gawker into a media phenomenon, but she was making the jump to print at New York magazine. Calacanis is still shaking his head over that one: “If she had listened to me, she would be a millionaire today.” (Click here for Spiers’s riff on Alan Greenspan.)
Calacanis turned his predatory attention to Peter Rojas, who had conceived the gadget blog Gizmodo and was making serious money for Denton. Rojas was unhappy, saying Denton insisted he write about sex toys and had reneged on a promise to give him equity in the business. When Calacanis offered him the chance to build his own blog — without editorial interference and with a partial stake — Rojas jumped at the chance, and Engadget was born.
“Nick has a reputation for not being trustworthy,” Rojas says. “I don’t know anyone who would say Jason isn’t trustworthy. He feels he is honorable in ways Nick is perhaps not.”
Denton, claiming he didn’t “really have anything to add beyond what’s on his blog,” declined to comment.
It didn’t take long for Engadget to double Gizmodo’s traffic. Weblogs Inc. went on to launch blogs covering cars, video games, parenting, and food. Within 18 months, Calacanis sold it to AOL. He wouldn’t confirm the $25 million figure, but admitted it was “not inaccurate.”
“I learned from my past,” he says.
After offloading Weblogs to AOL, Calacanis became general manager of the company’s Netscape division, where he took a hard look at AOL’s search engine. Calacanis was hardly an expert on search, but pretty soon he felt he understood why AOL’s engine was so poor from a user’s perspective: It was powered by Google, but there was too much clutter in the form of “sponsored links” between the search box and where the results began. Cramming the page with ads might be good for the bottom line, but it alienated users in the long run. Calacanis told AOL it needed “to love” its users more, causing a stir inside the company and a shouting match over the phone between Calacanis and one of AOL’s search-team members.
After a year as an executive, he quit corporate life, determined to do something big. The way to do that, he reasoned, was to pick something people use every day on the Web: email, instant messaging, or search. He chose search. Much of the inspiration for Mahalo came from Calacanis’s wife, who had put together a short email for friends and family with links to places to stay and things to do in Kauai, Hawaii, where she and Calacanis had their wedding. The list was neat, organized, informative. Calacanis wondered why search results couldn’t look that way too.
Late last year, he set up a meeting with Michael Moritz of Sequoia, the Menlo Park VC firm, and walked in with printouts for “iPod” and “Kauai vacation” taken from Ask.com, Google, Technorati, Wikipedia, Yahoo, and a few other sites. He taped them to the wall, where some unfurled for 16 pages or more. Next to them, he placed his own single sheet of handmade results. “Which ones are the best?” he asked.
His plan was devilishly clever: He would create a human-powered search engine that builds out prefab responses to the most popular search terms. He would shoot for the top 30%, or about 15,000 terms, to effectively skim the cream from the entire search business. Mahalo would deliver results for searches like “Paris Hilton,” “iPod,” and “Bill Gates,” but not for your local high-school football team or childhood sweetheart. And because those results would be prepared by humans, sifted and sorted and condensed for maximum relevance, users would no longer be faced with 10 million hits, as they are with Google, but with a few dozen. Mahalo would be a search engine for people who don’t like to search.
It took Calacanis all of 10 days to close his first round of financing with Sequoia, Musk, Cuban, Ted Leonsis of AOL, Fred Wilson of Union Square Ventures, and Matt Coffin, who founded LowerMyBills .com. “What I love about the idea,” Coffin says, “is that it’s so simple. It’s something my grandmother would use.” Musk, who sits on Mahalo’s board, says if he were going to do another Internet company, it would be like Mahalo. “Search is the major category on the Internet. If Mahalo is even slightly successful, it will be worth over a billion dollars. That puts it in the league of a PayPal, at least at the time that we sold it [in 2002].” By May, Calacanis closed a second round of financing, adding News Corp.; CBS; David Bradley, owner of The Atlantic Monthly; and Burda Media, a German publisher. The total: $20 million, good for about five years of operations given his current expenses. Calacanis then laid out $11,000 for the domain name Mahalo.com, which, at one point, had been a nude-celebrity site.
The rumors started to fly a month before Mahalo’s launch last spring, so Calacanis decided to have some fun with his archnemesis. He leaked fake tips to Nick Denton’s Valleywag blog. The first claimed he was doing a private-equity roll-up with 20 companies. Then Calacanis fed Denton a lie about trying to hire fallen shock jock Don Imus to headline a new podcast company. That sent Denton into conniptions: “Even for Jason Calacanis, this is opportunism taken to a dangerous extreme,” he blogged. “The loudmouthed blog mogul has, we’re hearing, been bragging to colleagues that he’s about to sign the disgraced radio host.” Eventually, Denton figured out he was being played, but by then he had posted plenty of misinformation.
Google is powered by perhaps as many as 200,000 servers (the company won’t say) and 10,000 employees. Mahalo, to date, has 20 of the first and fewer than 60 of the second. Each day, Mahalo staffers, who are called “guides,” sit before two 24-inch monitors in a converted factory in Santa Monica, compiling search results one at a time. It can take several hours to do a single page of links, depending on the complexity of the topic. Most of Calacanis’s employees are young out-of-work novelists, screenwriters, musicians, artists, and actors — info addicts happy to earn $35,000 a year plus health benefits by searching the Web rather than shelving books at Barnes & Noble or slinging chai lattes at Starbucks. Calacanis has promised them 15% of the company when and if it goes public, with the investors getting a third and Calacanis keeping the rest.
Over time, he plans to hire as many as 100 of these Netheads. And while it might be tempting to frame the battle as man versus machine, it cuts deeper than that: It’s man using the machine against itself. Mahalo’s searchers use Google to gather the raw material to build each page of results. But they also use Google to back up its lists. In other words, if you search Mahalo for a term that has yet to be tackled by the guides, you don’t come up empty, you just get bumped to the standard results “from our friends at Google,” as Calacanis, reluctant to antagonize the seductress of search, puts it. Mahalo grabs 65% of any revenue Google gleans from the referral. The symbiosis extends even further: Google also provides ads for Mahalo through AdSense.
In essence, Calacanis is using Google to beat Google. He’s creating a twofer — a site that tunes and refines the raw machine muscle of Google, but delivers Google at the same time. For people looking for simplicity, relevance, and a little human common sense, it’s a pretty attractive proposition. Still, the Web is littered with the carcasses of search companies. And skeptics are legion. Calacanis, they hasten to point out, didn’t invent people-powered search: Ask Jeeves did, nearly a decade ago — but Ask.com, as it’s now known, gave up on that game, becoming a server-driven Google knockoff owned by Barry Diller’s IAC Corp. Likewise, Yahoo’s human-powered directory has never been able to gather steam, and Microsoft has abandoned using humans to edit search results. “Wikipedia has shown you can maintain content about popular topics, so it’s not hopeless,” says Danny Sullivan, editor-in-chief of SearchEngineLand.com. “But assuming [Calacanis] does it, then he still has to persuade people to start trying him on a regular basis. And switching the Google habit for many people is about as easy as quitting smoking — it’s not.”
Not even Google seems convinced of this last point. “Search is one of the most competitive industries around,”says Matt Cutts, a software engineer there. “Users are only ever one click away from an alternative search engine.” Indeed, people switched from Yahoo to Google in a span of four years, and from Friendster to MySpace to Facebook in the same amount of time, and there is zero cost associated with switching. But Google doesn’t seem too worried about this latest people-powered upstart. Cutts doesn’t even consider Mahalo to be a search engine — he calls it a directory, with links compiled by humans. Besides, he says, Google isn’t just cold algorithms and circuit boards. But it relies on people in the way that Mahalo relies on computers, as subservient to the master, as mere inputs to calculate the “relevance” of a site largely by gauging how many people link to it and how many others link to that.
In short, those machines are pretty hard to argue with. They don’t need health bennies or take vacations, and they can instantly search for virtually any term you throw at them. The human-powered model, on the other hand, seems an anachronism, as quaint as using monks instead of a scanner to copy documents. But Calacanis is unfazed. And, typically, he has an answer for everything. He calculates that it costs Google approximately $4,000 to operate each of its servers for a year. So for the price of a dozen machines, he can have one human (who not only receives a base salary and benefits, but costs him payroll taxes) who will write some 500 terms a year and keep them up-to-date. Multiply that by his target of 100 workers and Mahalo would be able to generate 50,000 terms a year. What’s more, Google’s staff is 100 times larger, and precious few of them take home as little as 35 grand. In other words, however machine-driven it may be, there’s nothing cheap about running Google. “Search folks don’t understand editorial,” Calacanis says. “I’m not afraid of editorial costs, just like machine-search folks are not afraid of computer servers.” He adds, “CNN was crazy to think they could fill 24 hours with news — let alone around the world in 10 to 20 languages. Reuters or AP with a thousand people around the world covering news? Crazy. But what if I get to that level. Is it possible? Would it change the world?”
To hasten the pace, Calacanis has actually baked crowd sourcing into his business model. His Mahalo Greenhouse initiative pays $10 for anyone who builds an acceptable page of results for Mahalo, which goes up $1 for each milestone — like 5 completed, 10 completed, all the way up to 50 completed; the longer you stay the more you make. He sees this as an opportunity to tap an almost infinite labor pool of smart, dedicated people excited about sharing what they know. (If they want to stick to the purity of wikis, he has offered to donate their pay to Wikipedia or Mozilla.) In the first two weeks, Mahalo received 800 applications from would-be Greenhouse contributors, and Calacanis has already begun incorporating their work, which is vetted by full-time guides.
To erode Google’s advantage further, Calacanis has formed a team to monitor RSS feeds and breaking news stories. Google recently began folding Google News stories into its searches, but the vast majority of these results lag the news noticeably. Mahalo’s news team can create a partial page (a “stub” in wiki-speak) in minutes and add to it as a story unfolds. That might not satisfy serious news junkies, but most people start looking for a story 10 hours later or the next day.
At the rate it’s going, Mahalo will capture some 25,000 terms by the end of 2008 — far more than the top 30%. And Calacanis is in no hurry to monetize his idea. He doesn’t plan to sell advertising for at least a year or two, giving him plenty of time to establish a viable brand. Mahalo, after all, is act three of his business life, when the protagonist either achieves his dream — or dies trying. “Anything less than being the next Yahoo, Google, or eBay,” he says, “is a failure as far as I’m concerned.”
You can tell a lot about a man by the company he keeps.
At 5 o’clock on a Tuesday afternoon, Calacanis emails a few friends to meet for dinner at Chaya Brasserie in Beverly Hills. By 8:30, he has gathered half a billion dollars of net worth at his table: Shawn Gold, a senior vice president at MySpace; Coffin, who sold LowerMyBills.com to Experian for $350 million; and Musk.
Calacanis, who dreams of achieving this sort of liquidity, orders without asking what anyone wants: nouvelle sushi — dragon and bonzai rolls — and platters of meat. But it’s Musk who is the star of the table. Everyone wants to know if they can jump the waiting list for a Tesla electric car. A few spots are reserved for celebrity buyers like George Clooney, but only for people who can promote Tesla. No one, not even Musk, gets a discount. Coffin, who had test-driven an Aston Martin that conked out a mile from the dealership, isn’t fazed by the $97,000 list price. Nor is Calacanis, who tools around L.A. in a “velocity yellow” Corvette. That was the car in Brooklyn when he was growing up. It took him less than a week to get his first speeding ticket, which, in true Calacanis fashion, he talked his way out of.
Crackberry addicts all, everyone spends dinner surreptitiously scrolling through email. Calacanis checks his machine at stoplights, top down and AC blasting. Coffin confesses he takes it to bed with him, where he can work at 3 a.m. while his wife sleeps next to him.
Then, acknowledging the presence of a journalist in their midst, Coffin shouts, “This is on the record!” Everyone quiets down. Drawing out each syllable, he declares, “Jason Calacanis is a complete pain in the ass!”
Everyone laughs, Calacanis loudest of all.
Copyright 2007 Adam L. Penenberg (penenberg.com)