If you believe what he’s saying now, mark my words you will regret your defense of him later.

Smart people start businesses to make money. Period. If you ain’t in it for the money then get out the game.

I don’t give a shit about “flipping.” I’m not interested in playing poker – I’d rather collect the rake.

Maybe your perspective has been distorted by Bubble 2.0 but most people don’t flip profitless businesses for lots of money. After all, most companies with cash don’t like trading cash for a business that isn’t going to help the bottom line.

Given the current economic situation, those who play the gambling game you refer to are going to find it harder and harder to succeed. M&A activity, especially in the consumer Internet space, was already on the decline before the financial markets collapsed. When you look at the massive amount of money that has been shaved from the market cap of companies like Google in just a few short months, you’ll probably recognize why anyone smart who was hoping for an acquisition of their startup by Google is having second thoughts about strategy.

Smart affiliate marketers haven’t done what Calacanis has done because they’re smart.

Why would you? Let’s say you’re an affiliate marketer pulling in $100,000/month. That’s $1.2 million/year in pre-tax revenue. You may outsource some tasks to a small staff and hopefully you are domiciled in a location that has a more favorable tax structure than, say California.

All told, you probably walk away each year with an amount in the high 6-figure range. Is that the $25 million “flip” Calacanis is hoping for? No.

But let’s look at this in more detail.

A $25 million “flip” isn’t always lucrative for founders, management and employees.

Mahalo has raised $21 million from investors over 3 rounds. If Mahalo’s funding structure is typical, Calacanis probably owns 10-20% of Mahalo at this point. So if he “flips” Mahalo for $25 million and owns 20%, he’s made a cool $5 million before taxes, right?

If only it were that easy. When you deal with professional investors, you have to deal with liquidation preferences. They want to make sure that they have some protection. After all, investors don’t want to invest $21 million in a company at a $50 million pre-money valuation, for example, only to see the company sold for $25 million, leaving them walking away with a loss while the founder used their $21 million to walk away with a $5 million profit.

So they demand liquidation preferences that dictate how money is returned to shareholders when a liquidity event occurs. A detailed discussion of liquidation preferences is beyond the scope of this comment but let’s put it this way: if Mahalo is sold tomorrow for $25 million, there’s no way Calacanis is getting his money out before his investors, which include CBS, News Corp. and Sequoia Capital. They invested $21 million in Mahalo and they’re looking for a 3-5x return. Although I don’t know what valuation they gave to Mahalo, we’re probably looking at Mahalo needing a $100-$200+ million acquisition for them to come out ahead. I don’t see where that’s going to come from at this point.

So in short, if Mahalo is sold for $25 million tomorrow, there’d be a good chance that Calacanis walks away with just about the same amount of money that our smart affiliate marketer who grosses $1.2 million/year takes home in single year.

And while Calacanis was busy gambling on Mahalo, that affiliate marketer was accumulating capital that was available for investment elsewhere.

And that gives him the ability to tap into what Albert Einstein called “the greatest invention of all time” – compound interest.

Let’s say that that affiliate marketer takes home $750,000/year, continues to run his affiliate marketing business, keeps his living expenses low, puts some of his money savings and then reinvests $250,000 into other businesses, assets and investments that generate earnings.

I’m not going to do the math for you but if you take a basic compounding formula and plug in some assumptions for various types of businesses/investments/assets, you’ll see that, if our affiliate marketer puts his money to work wisely, in a relatively short period of time (less than a decade), he has the potential to be a very wealthy man.

This is not a hypothetical scenario. There are plenty of people around the world you’ve never heard of who started small and individually make more money every year than probably 95% of the consumer Internet startups in Silicon Valley using this philosophy.

In short, capital produces capital. It’s why the rich get richer.

Looking at things from this perspective, you can now ask yourself a simple question – would I rather focus on building an online business that I can turn into something generating $20,000/month within a year or would I rather start a company, raise money from investors and hope that somebody buys me out?

In other words, do you want to be the house or do you want to be the gambler?

Haha, no, we actually created a comic that satirized him: http://www.rankedhard.com/jason-calacanis-seo-has-no-future.php

I do think he’s a brilliant performance artist (maybe the best in the history of Silicon Valley?), and that’s why I’m surprised that Mahalo was the type of site he decided to create. Calacanis is the Seth Godian “purple cow,” and Mahalo has no edge or linkbait-ability. It just recedes into the furniture…for now.

“If Calacanis was serious about making money (and was running his business like the affiliate marketers he scoffs at), he’d sign up for VividCash.com to promote Kardashian’s sex tape and he’d make $50 per signup he generates.”

He is serious about making money, but big money. And promoting a porn affiliate program would sort of ruin any chance that he could flip the site for the kind of money he would want to flip it for…Talk about ruining the reputation of your site. I know you were half-joking here, but this is the epitome of why his mindset is different than affiliate marketers and why he creates websites that can be flipped for $25 million and affiliate marketers choose not to do that. The smart ones (the ones making 5 and 6 figures a month) could if they wanted to, but they don’t. Maybe they don’t want to deal with Vulture capitalists, or they don’t want to take the risk..what have you. But Calacanis set his monetary goals much higher than super-affiliates, and as a result he has to be less aggressive with ad placement at the beginning to build user loyalty.

Mahalo pages do rank well in Google on average, and it’s obvious that Google has given Mahalo a high trust rank score. See this: http://www.nickycakes.com/stop-ruining-the-internet-mahalo-thats-my-job/

Obviously NOT every page on Mahalo is going to rank well in Google: the site isn’t a bloody Wikipedia. However, many Mahalo pages with actual content (and even some rail thin MFA ones) rank well, and I predict in 2-3 years, when many more pages have actual content, that it’s only going to get more traffic from Google. In fact, that’s a safe assumption.

I have to imagine that Calacanis is sitting and watching this with his Google alerts, but he refuses to comment. Why don’t you chime in, Jason?

First, I don’t give a shit about the fact that Calacanis sold Weblogs for $25 million. That doesn’t guarantee future success and if you took every 10 people who made millions selling their companies, I’d venture a guess that probably 5 of them went on to lose most of that money with their future ventures and investments.

Second, Mahalo is a shitty business. It’s a VC-backed, overhyped and poorly-run SEO play that is arguably nothing more than an undermonetized link farm.

Let’s look at a few examples:

Grand Theft Auto IV

Mahalo ranks on page 8 of Google for this search term. Do you know how many searchers get to page 8?
Mahalo’s page for Grand Theft Auto IV shows Google AdSense ads. Want to guess how much money Mahalo probably makes per click on these? Making matters worse, only 2 of the ads appear above the fold on my 22″ monitor running at 1680×1050 while “The Mahalo Top 7″ links (which take visitors to other websites) are right at the top.

Kim Kardashian

Mahalo ranks on page 5 of Google for this search term.
Mahalo’s page for the popular socialite has zero ads. In other words, this page is completely unmonetized. If Calacanis was serious about making money (and was running his business like the affiliate marketers he scoffs at), he’d sign up for VividCash.com to promote Kardashian’s sex tape and he’d make $50 per signup he generates.

Los Angeles Lakers

Mahalo doesn’t rank in the first 10 pages for Los Angeles Lakers.
The Mahalo Lakers page has two AdSense units. Two of the three above-the-fold AdSense ads that I initially missed were irrelevant – one pushed Atlanta Hawks tickets and the other promoted celebrity photos.

In short, Mahalo is probably the worst-run SEO play I’ve ever seen. It’s an embarrassment.

It should be run by the type of affiliate marketers who make 5 and 6-figure amounts each month from the comfort of their apartments. The only problem is that those affiliate marketers didn’t need over $10 million in VC money to build websites that pull in substantially more money than Mahalo so they’d probably have no interest in running Mahalo.

You see Mahalo ranking well on Google. They’re only going to rank better in the coming years as Mahalo gains trust and builds more content. When Mahalo starts selling direct ads, more advertisers are going to want to spend money there than on say, Facebook, because they’ll actually get clicks. As Mahalo gets more and more content, it’s going to have more options from a strategic partnership standpoint. Calacanis understands how to build things that have value to advertisers and can be flipped in time. Unlike a lot of other people who walk around making public statements about how they have no clue what their monetization strategy should be, Calacanis develops a calculated plan from beginning to end with his companies. So if you think he’s going to fail then Silicon Valley is really fucked.

A Mahalo stock certificate isn’t worth the paper it’s printed on.

If you believe that Mahalo’s stock will ever have real value, I’d suggest you buy 25,000 shares of GM stock on Monday at ~$4. You have a better chance of it going to $8 than you have Jason Calacanis turning Mahalo into a winner.

In all fairness, sweatshops don’t give their sweatshop workers stock in the company. No sweatshop worker has the potential to make $100,000 overnight.