It’s been a rough year for Mahalo. The startup, which was founded by Jason Calacanis in 2007, began its life as a human powered search engine that offered curated links in what was intended to be a mix between the traditional search layout and Wikipedia. Over time, Mahalo became a knowledge directory, launched a Q&A service a la Yahoo! Answers, and began producing educational and games-related video content.
However, in late February, Google made a change to how it determines rankings for the websites it aggregates and serves in search results as part of an effort to lower the rank of content farms and reward sites producing higher quality content. Though Mahalo had spent millions producing expert-driven video content as well as accompanying articles, Calacanis wrote to employees in March that Google’s revisions had led to a “significant dip” in their “traffic and revenue”.
In the same email, the CEO shared the news that the startup had cut 10 percent of its staff, reduced non-essential services, and touched on the long-term goal of Mahalo, which is to become a resource for high-quality educational video and written content.
Earlier this month, Mahalo initiated another round of layoffs, reducing its team of 67 to 49, approximately 27 percent of its staff. (It had a staff of more than 100 employees as recently as February.) Mahalo President Jason Rapp tells me that most of these layoffs were part of the platform’s video game team. The site’s gamers had been producing walk-throughs and reviews of video games, which had built some good traffic (about 15+ million views per month, he said), but the content is not easily convertible into apps.
And this is where Mahalo sees its future. While the startup will continue with its educational video production, Rapp said that they will dial back the volume of video content as it shifts more energy to focus on developing educational apps. Part of the reason for this is, again, while Mahalo’s educational and gaming video content was seeing a collective 30 million views per month, many of those views were occurring on YouTube and not Mahalo itself. Revenue from video advertising both on its site and on YouTube have not been significant enough to warrant the dedication of further resources toward those verticals.
Instead, Mahalo believes that there’s money to be had in educational apps, specifically for the iPad. Over the last two months, the startup has released four apps, three of which are paid apps: Learn guitar at $4.99, Learn Pilates at $9.99, and How to Draw at $9.99. Thus far, the company has seen 65,000 installs across its iPad apps, which may well be early confirmation that paid iPad apps will be a more valuable source of revenue that video advertising.
Rapp also said that the team plans to release a free gaming walkthrough app very soon, which will monetize through in-app purchases. This is evidence of what’s to come, as Mahalo will ramp up app development, with Rapp saying that the company is targeting a release cycle of one app per week through the remainder of 2011.
While Mahalo has downsized by more than 50 percent since February, it’s a well-funded operation, having raised over $21 million in outside investment from some big names that include Sequoia Capital, Mark Cuban, CBS, News Corp., and Elon Musk. The startup also counts Roelof Botha and Matt Coffin as board members.
Certainly, Mahalo has seen better times, and it’s become clear that the team was over-producing for the video game market. The reduction in staff does seem to reveal that Mahalo may have spread itself too thin and was trying to do too much — or at the very least had dedicated too many resources to a less value vertical. But, startups often don’t find the best direction without making a few mistakes, and pivots are often a must. It’s just a matter of making them before financing and investor faith dries up.
For Mahalo, Rapp said that he thinks the company will be able to better serve its audience and focus on its new app-centric direction with a smaller staff. Of course, that doesn’t make it any easier to be one of the now unemployed (and former) staffers at Mahalo.
Perhaps getting back to the lean startup mentality will help steer the company in a more profitable direction. We’ll see.
For more on Mahalo, check ’em out at home here.