STARTUP TO WATCH
Mahalo Spices Up Information-Sharing With Cash Incentives

A heavily financed Internet startup has launched a new question-and-answer search engine with a twist -- users pay one another to get answers to questions.

Santa Monica, Calif.-based Mahalo launched Mahalo Answers earlier this week. The search service is reminiscent of Yahoo (Nasdaq: YHOO) Answers and search engines popular in Asia such as Naver and Daum, both based in South Korea.

Here's how Mahalo Answers works: Users type in a question of 110 characters or less and wait for others to respond. That's where the twist comes in.

Users can put a "bounty" on their questions -- a system whereby they offer a monetary reward to the person who comes up with the best answer. The winner gets 75 percent of the bounty, with the rest going to Mahalo.

Q&A Search Model

"The Q&A model is absolutely huge in Korea," Tyler Crowley, director of marketing , strategy and corporate development at Mahalo, told the E-Commerce Times. "We spent a lot of time in Korea. The ones you've seen here in the states, like Yahoo Answers, were influenced by Naver and Daum."

At the same time, American search engine powerhouse Google (Nasdaq: GOOG) has had a difficult go of it in Asia.

"What's really fascinating to us is Naver is a dominating, Google-like service in Korea," Crowley said. "Google is in Korea, but they can't break more than 2 percent of market share over there."

Why can't they crack Korea after years in that market? User behavior in Korea is very different.

"A lot of it is, the way we do searches here on Google is you type in keywords that would appear in phrases," Crowley said. "That's not how they do it over there. They go through a question and answer process."

Search Means User Interaction

The question-and-answer search model forces users to talk to one another, Crowley noted, which is one of the prime reasons for its stickiness in Asia.

"What we noticed is people get far more engaged when they're using a Q&A approach to find information," he said. "Much like a video game, you're interacting with other people -- you have a reputation involved, and you want to make sure you have a good answer. The social element to it is very human."

One of the prime features of Mahalo Answers is the ability for users to reach out to their contacts on social networking sites Facebook and Twitter to ask questions. However, the concept is not new.

"People have been doing Q&A to their immediate networks via Facebook and Twitter for some time, and before that via message boards and e-mail lists," Alan Chapell, president of Chapell & Associates, told the E-Commerce Times. "I often reach out to my network via e-mail or Facebook to answer questions and to gauge opinions, and the currency used is generally karma-based."

That said, the question-and-answer search format may not catch on among Americans.

"While intuitively I think there's some value to expanding that network a bit," Chapell said, "I can't think of an instance where I would want to reach out to strangers for anything other than trivia. There are already plenty of resources available for those types of questions. I wonder if that's one of the reasons that these types of services have not proliferated in the U.S."

Big Backers

Skepticism aside, a consortium of headline names in the media and venture capital businesses have eagerly pumped money into Mahalo, which has 60 employees and was launched in May 2007.

Investors include CBS, News Corp., Burda Media of Germany and Sequoia Capital, as well as Mark Cuban, owner of the Dallas Mavericks, and Elon Musk, cofounder of PayPal and space transportation startup SpaceX.

Mahalo's founder is Jason Calacanis, who founded Weblogs and sold it to AOL for $25 million in October 2005.

With all that going for it, Mahalo still has a monumental challenge ahead: It must change the searcher's mindset in the U.S.

"The key issue is getting users to change their behavior," Mahalo's Crowley said. "Google is habitual and addictive. We want Mahalo to be habitual and addictive."

Most people employ an assortment of techniques to obtain information on the Web.

"Based on our research, we know that when people are doing a search, many will start with a Google search -- then do a Wikipedia search and then a Q&A search," said Crowley. "Mahalo tries to incorporate all three."

For example, let's say a user goes to Mahalo.com and conducts a search for 1960s folk music icon Bob Dylan. The search query will produce biographical information about Dylan, such as the fact that he was born in Duluth, Minn., and that his real name is Robert Allen Zimmerman -- information similar to what one might find on Wikipedia.

However, the Dylan search will also return sponsored links and ads from Google, as well as information garnered from Mahalo users -- and all on the same page.

A Unique Opportunity

Since no single player has emerged as dominant using the question-and-answer search model in the U.S., Mahalo sees a unique opportunity to become the industry leader.

"Yahoo Answers is huge, traffic-wise, but they're not devoting many resources toward it," Crowley said. "We see this as a real opportunity for us."