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Why Tumblr Sold: It was a "big game of chicken" that was "literally months from bankruptcy" -- New York Magazine

Stashed in: Startup Lessons, Awesome, Monetization, Tumblr

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Tumblr was VERY LUCKY Yahoo wanted to buy them:

If low- and mid- and even some high-level employees were shocked—“I don’t think anyone saw it coming necessarily,” says Gottfrid—anyone paying attention to Tumblr’s burn rate should have been expecting an exit. Despite its popularity (it is the fourteenth-most-visited site in the U.S., according to Quantcast, a few slots above Wikipedia), Tumblr was a six-year-old blogging platform with disappointing revenue targets, no clear path to profitability, and alarmingly little cash in the bank (just $16.6 million when it was purchased). To stay afloat without selling, it would have needed a sixth round of funding, which, given the situation, might have led to a “down round,” and to Karp ceding a substantial chunk of his equity. As one person watching the deal unfold put it: “It was the biggest game of chicken I’ve ever seen in a startup. Literally months away from bankruptcy, and he manages to find an angel in Marissa Mayer.”’

is that low for a $1B+ exit?

Yes. They raised five rounds of venture capital so investors owned 70% of the company.

David Karp seems bored by controlling the costs of his infrastructure:

The interaction between dark-suited editor and smiley Karp looked less a power move than that of a bar mitzvah accepting congrats on his big day; you could see Karp applying himself, but he hasn’t quite grown out of his executive-puberty stage. When asked a question that bores him, his eyes go unreactive, and there’s a nearly audible shutdown noise as he disengages. Among the topics that bore him are cars (“I don’t like cars anymore”); Internet comments (“Gross”); his company’s colossally expensive infrastructure (“I have a very rudimentary understanding of how Tumblr actually works these days”); and management (“I’m not super-passionate about how we run the company”).

David Karp is very into drones:

Among his latest obsessions are drones: “I’m obsessed with drones right now. I fly my drones all over Brooklyn. These things are amazing. These things are not regulated. I keep destroying them. I’ve had five of them.” He spoke rapidly as he ate, bouncing both feet and palpating a knee. “You get them from China, so they all come HK Post, which means that you have to wait for them for, like—you’re lucky if they come within two months. So I usually have a few on order at any given time. Here, I’ll show you.” He took out his iPhone and brought up a homemade video scored with trippy music. “See? The Domino Sugar Factory. Flying. Water.” He brings a smaller drone—one with eight minutes of flight time and “a decent range”—to the office for indoor use. “I can have it over on the other side of the office, bothering people while I’m at my desk. Usually I send it straight over my lawyer’s head.” It is, Karp said, “really pretty frickin’ cool.” He worries they’ll be regulated soon.

Tumblr’s appeal can be summed up in one word, which is “easy”:

If you traveled back in time to 1996 and took a grandmother whose understanding of the web was AOL and wormholed her to 2013, she’d be able to create a Tumblr blog in less than three minutes with no direction. The site’s posting icons are big, the fonts are big, everything is big: The whole thesis is that there’s no fine print and no learning curve. Generating new blogs is so easy that Tumblr limits the number that users are allowed to create in a single day. (The limit is ten.)

David Karp no longer flips the middle finger at Wordpress and Blogger:

If the “easy” mandate feels unimaginative today, it was less so in 2007. Karp has talked a lot about his frustration with tools like Wordpress and Blogger, and he is shrewder these days in his framing of Tumblr as “a novel alternative” rather than a middle finger. Blogging in 2007 required too much work: “I had all sorts of things I wanted to share, but they were screenshots, jokes, poorly formed ideas, videos that I had just watched that were hilarious, and things that I was working on.” Karp’s idea was to create a little portal to Internet heaven, with George Takei videos, Homer Simpson quotes, pictures of Italian luxury cars, dream logs, self-portraits, observations, Lost trailers, and porn (which makes up around 11 percent of the site’s content). The new blogging would be less about writing and more about declaring a personal sensibility. Thanks to an innovation called the reblog, users wouldn’t even need to create anything themselves; they could just post what they scavenged elsewhere and, Karp says, “use that curation to tell their stories.” He sees Tumblr as a tool for “the most talented people in the world.”

Tumblr is now the 14th biggest website in the world. 

David Karp says retweeting preceded reblogging:

A good measure of your influence in the tech community is how well you’ve succeeded in changing user behavior en masse, and by this metric, Karp might as well fold up his laptop and retire. His creation of reblogging in 2007 invented and then codified a behavior that everyone on the Internet now engages with, which is that of appropriating content from other users and attributing that content natively. In other words, Karp is to thank for the retweet and the repin, and he takes full responsibility: “Reblogging came first,” he says. “It was a few months into reblogging when retweeting started to become an idea.”

Tumblr now has more than 140 million blogs:

One issue with couching this behavior in artistic terms is that Tumblr has yet to produce anything that is especially popular outside of its own network. It has not given us a Justin Bieber, who started on YouTube, or a Kelly Oxford, the comedienne who first gained notice on Twitter. But by harder metrics, the platform is cleaning up: from three full-time employees in early 2008 to 183 today, from thousands of blogs to just below 140 million. One survey from earlier this year shows more 13-to-25-year-olds using Tumblr than Facebook.

Tumblr has never excelled at monetization:

The company’s attempts to generate revenue began in 2010, when users could pay to get their blogs featured in a directory that no longer exists, or to purchase prettily designed premium themes, though most of the money went to the designers rather than Tumblr. In early 2012, the company offered options allowing users to stick a label on “extra-important” posts for $1 or “pin” posts for $5; it subsequently disabled both features. Meanwhile, a competitive site, Pinterest, had popped up out of nowhere offering a similar image curation service but with an obvious profit engine (driving users to e-commerce sites and charging a toll for the service) and a mammoth valuation to show for it: $2.5 billion as of February.

“Pinterest ate their lunch in a lot of ways,” said one person close to the company, who suggested that the timing of that valuation may have pushed Tumblr further along toward the road to an exit. Early 2013 was a fragile, scary time for the company, and while Karp was loath to muddy his platform with ads—it “really turns our stomachs,” he said in 2010—he also didn’t have much choice. In April, mobile users began to see promotions pop up in their dashboards. Ten days after the acquisition, Tumblr expanded those ads to hit desktop users as well. It was the first decision Karp made that prioritized revenue over the user experience; in a way, his first real decision as CEO.

When asked when he expects Tumblr to be profitable, the CEO hat comes off. He doesn’t know, Karp said recently at his office; profitability “has never been a particularly important milestone” to him. “My philosophy toward that has always been, like, the guy on the corner selling fruit is running a profitable business. There are many profitable businesses out there. There are only so many very large networks.” He’s confident that “if the media network supports the creators, then the creators will make that their home. They’ll build an audience, and more creators will show up to reach that audience. More creators will see it as the land of opportunity for them to bring their work. And then an even bigger audience will show up.” He flung his arms out to their full wingspan for emphasis, smacking the laptop of a person sitting next to him. “That,” Karp said, “will make Tumblr important for a long time.”

it is better than facebook.  so are a lot of PandaWhale!

Agreed. Not only is the content more interesting, but also Tumblr doesn't track you all over the web so it can sell information about you to advertisers.

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