This celebration of "businesses" who make no money (and show no interest in making money) has to stop. It's one thing if we call them what they are - neat little side projects.
But if we're to believe these companies are businesses that make money and put food on the table, that's hogwash.
Tumblr gets over 10 billion page views a month. It's something bigger than a "neat little side project." The criticism of Tumblr (and Twitter) that they're not "real" businesses or that they're not interested in making money ignores how young these companies are and how early in their lifetimes we're judging them.
The point is they should've been making money a lot sooner. I'd agree they aren't real businesses because they AREN'T MAKING MONEY. That is sort of the definition of a company no?
How young they are? That is a criteria for whether a company should be making money or not? The point of any company really is to make money. These "startups" aren't filing as non-profits right? So they should be making money. If after the first couple months of being open you aren't figuring out how to make money you've done something wrong.
EDIT: Let me edit this to make it more clear. They should be self-sustaining. They should be able to pay their bills and employees. Whether they make a profit or not isn't the point. But if a company doesn't get funding and that alone causes them to disappear then they've done something wrong.
"Making money" is not a one-dimensional state - there's a time element to it.
Officers in a business do not have a fiduciary duty to "make money" at any given point in time, they have a duty to increase the value of the property they are responsible for managing. As a shareholder, that is absolutely what you would want someone managing your property to do.
Taking an investment in order to increase the value of the company over the long term, even at the expense of making money today, can be the rational thing to do. And it's certainly more rational than without exception focusing on "making money" today.
Not really. Do you think Ford aren't a company, how about Vodafone, BP and UBS ? - these are all companies which have filed annual losses.
Yes the purpose of a company is to make money, but not making money in the short term doesn't mean it's not a company.
Not all business are inherently self-sustaining in a short time period, many small business (including shop, restaurants, etc) will operate at a loss in their first year.
There's plenty of business that take a while to return a profit, that doesn't make them any less businesses just because they're not the type of business that you'd like to run.
My larger point is these "companies" appear to have no interest in making money. I'm not suggesting you need to be making money every single minute of your company's existence.
Instead, I'm suggesting that you should be interested in (and actively working toward) making money.
The fact they're raising investment is a pretty clear statement that they want to make money. Just because they're not choosing to focus on revenue at this stage of product development doesn't really mean they have no interest in making money.
Any company needs to decide where their focus should be, Tumblr may well have done the analysis and decided that rather than take their focus away from their core product and focus on monetization (which may only generate a few hundred million in revenue at this stage) it's better for them to focus on their core product now in order to have a chance of monetizing at the billion dollar range in the future.
Tumblr was founded in 2007. That makes it nearly 4 years old.
Twitter was founded in 2006. That makes it nearly 5 years old.
At what point in their "Humble Beginnings" do you suggest they start thinking about making some money and becoming self-sustaining?
Somewhere along the way they need to focus on being able to provide for themselves. Otherwise it's a giant ponzi scheme where all you get are investors investing in a product that won't return their investment.
At the point where it makes more sense to focus on monetization rather than growing the user-base in order to maximize the lifetime revenue of the company (as opposed to current revenue). It's silly to put some arbitrary deadline on something which should clearly be based upon company metrics.
If Ford, Vodafone, BP and UBS continued to file losses, then, no, they wouldn't be companies either. In fact, UBS probably won't be at the current rate they are barreling towards ruin.
Number one rule of business: make a profit, any profit.
It's extremely risky but perfectly acceptable to grow an unprofitable business to the point where it becomes an attractive acquisition target for a company that can monetize it effectively.
It's also extremely risky but perfectly acceptable to sacrifice profitability in favor of extremely rapid expansion in a new market, and then achieve profitability later.
Venture capitalists naturally like businesses (and yes, they are businesses) with strategies like this because they require lots of capital.
Just because you and I have a different appetite for risk and wouldn't build a business using these strategies doesn't mean the businesses themselves are 'neat little side projects'.
I'm kind of in favor of rebranding "startups" that have no business like Twitter or Tumblr as "charities."
"For only 30¢ per day you can make a difference in the life of a young adult who wants to reblog naked girls from other Tumblr sites and tweet about animated GIFs."
Tumblr is a really interesting case, since their page views grow exponentially (since everything gets reblogged on Tumblr).
Consider: a post gets reblogged by a users and seen by their b followers, who reblog to their c followers etc. Thus, the average post has:
a + b^a + c^b + ...
total views. Set a += 1. Then
b += b, c += c * b ...
How many new page views will Tumblr get? Hundreds? Thousands?
What happens once Tumblr decides to advertise, even with AdSense? What if they use these $85m to build a data team and target ads? Because that's what they're doing with part of the money. [0]
I'm not a fan of funding companies solely on potential, but Tumblr could be big.
The really irresponsible thing here is that the article doesn't make an explicit point of Tumblr's lack of revenue or revenue model and ask 'wtf is the plan?'.
Reminds me of ra-ra coverage celebrating the 'success' of Digg.
Tumblr is one of the few companies who can potentially dethrone Facebook (if you have younger family members ask them if they use Facebook or Tumblr more), a company which has a multi-billion dollar revenue stream while still in the early stages of monetization.
It's easy to forget that Google didn't have a revenue stream for a long time. If you're solving a problem for users then there's going to be a way to monetize it, the bigger question is if the revenue per user is higher than the cost per user. Given Tumblr's costs per user is relatively low that shouldn't be a problem.
If they chose to switch on ads tomorrow even using remaindered ad suppliers they would have $100m+ in annual revenues.
Google didn't make money, but Google almost went under before they managed to leech off of an idea from Overture and start making money with PPC.
It is a fallacy to say that because just because Google did not make money right away that it is acceptable for any business to flounder along for years with no identifiable monetization in sight. Amazon didn't make money right away either, but just because Google and Amazon started making money doesn't mean that every internet startup will become Google or Amazon. Twitter should have been making money for some time now; it's absolutely ludicrous that they aren't.
If Tumblr is really getting 10 billion page views, what are they waiting for? I don't understand where the money comes from to throw into these projects that have no track record of profitability.
To put it another way, would investors pour $85 million of new investment into Burger King tomorrow? How about Sears? These are companies with massive revenue and decades of profit and investors would be hard pressed to just hand them millions - when companies like Burger King get money, it's with terms, i.e., loans to build new locations.
Juxtaposed against handing Tumblr $85 million just so they can afford to keep their servers going is incredibly silly.
People invest in hot properties like Tumblr for the same reason people will pay a significant premium for real estate on busy intersections: they have access to tons of "eyeballs" (I know, I know, hackneyed term) and it's a lot easier to figure out how to make $85 million with 10 billion page views then it is to start with $85 million and 0 page views.
There are, I agree, some egregious cases. Three examples spring to mind.
Color raised $41 million on basically nothing. Many, including myself, criticized the concept. All the defenders had was "we don't really know where this is going".
The second example--and this is going to be somewhat controversial--is Twitter. Twitter is now at the point where they need to start figuring out the monetization problem. They've established a site where third-party access is a huge part of the user base. The 140 character message format limits in-stream options (and people have thus far railed against inserting ads into tweet streams).
Plus (IMHO) Twitter has become a tool for following celebrities. The TMZ of the Internet if you will. Not that there isn't a market for that but it's not as large as the vision of people in general sharing status updates. I'm far from convinced that Twitter will make that transition to mainstream.
The third is Groupon. Many, including myself, have been critical of Groupon's shady practices for awhile. What's happened in the last few months is that this Ponzi scheme has started to unravel. Better now than after the IPO. And not before taking over $1 billion in VC, most of that coming from DST who seems to be willing to throw money around with impunity. Better them than American consumers who Congress might feel some need to jump to the defense of.
But, in general, this isn't a celebration of businesses that make no money. It's allowing businesses to scale and grow quickly rather. Many Internet businesses couldn't be profitable if small. Or organic growth would simply take too long and a VC-backed rival could well supplant them.
In Tumblr's case, growing from 2B views/month to 13B/month is nothing less than impressive. The "blog" format has (IMHO) lots of monetization potential. In the short to medium term Tumblr seems destined for more growth or a big exit on buyout.
It goes both ways. The distinction might be efficiency of profit per capital and time invested. Something like patio11's bingo card maker, which makes money out of almost nowhere compared to its cost, works well only if small. But that type of set-it-and-forget-it business doesn't scale to the likes of Groupon or Dropbox or Spotify or Airbnb.
I would say social networks are not "most internet companies". And I would also say that most social networks are not generating enough ad revenue to generate sustainable profits.
In Twitter's case, a revenue source besides ads is data. They're selling some feeds directly (to Microsoft and Google), and seem to be reselling others via Gnip, taking a cut (http://gnip.com/twitter).
It's interesting that this question keeps getting mod'd up and then mod'd back down again. Elephant in the room? For as successful as Tumblr's growth has been, my guess that it's in large part due to the platform distributing a bazillion free porn images and videos. I would be curious to know how much of their traffic is actually porn. My sense is it could be > 80%.
Fwiw, I have nothing against porn. I think it is part of what powers the internet. But I think it's disingenuous to tout the success of a site when you're giving away something for free (much like free music or videos) virtually everybody wants.
As a long-time Tumblr user I've always wondered, do they have income?
There are no ads on the site, and no premium plans or pricing (other than the paid themes, but I assume that most of that goes to the theme's author) that I can see. How can it last?
Mr. Karp said that Tumblr’s growth has exploded in the past year. It’s attracted popular musicians such as Lady Gaga and traffic leapt to 13 billion page views per month from 2 billion page views per month. Since the site was first introduced, 30 million blogs have been created using the tool. Those 30 million blogs now generate more than 40 million posts each day.
A recent report from Nielsen said that the audience for the site tripled in the past year and has drawn more female teens to the site than any other social network. Although Facebook still dominates the majority of the time Americans spend on the Web, occupying more than 53 billion minutes each month, Tumblr manages to capture a reasonable share of screen time as well, with more than 623 million minutes per month.
So the avg. American spends ~3hrs a month on Facebook and 2mins on Tumblr.
Obviously Facebook is a lot more popular, and if you can't see that from reading "53 billion" vs "623 million" then...
What is interesting is some other statistics that show Tubmlr to be impressive, such as:
- 10% more "minutes spent" by US visitors than Twitter
- Tumblr generated the second most UK pageviews of any social network, after Facebook (again, obviously, a long way behind Facebook)
- With 11 million unique US viewers, Tumblr has less than Twitter (23m), Wordpress (22m), MySpace (19m), LinkedIn (17m), yet has more minutes spent on it than any of those. Blogger has 50m uniques (321% more than Tumblr) and only 700m minutes (16% more than Tumblr). All this shows that while it isn't huge in how many people use it, the audience it does have is much more engaged that other sites.
But unless 100% of Americans use both these services, that is irrelevant, so essentially all you are doing is finding the lowest common denominator - and if you're wanting to do that, why wouldn't you go with defining facebook as "90x more", i.e. 90 / 1 rather than 180 / 2.
You're dividing minutes per month by the total population of the USA (appx. 300 million) to get "avg. American," but I'm sure Facebook has more unique users than Tumblr. So the disparity in time spent on site per person probably isn't so much.
Has anyone figured out how to use tumblr in some "meaningful" way e.g. not just reposting the same old memes over and over again?
I still struggle to get the point of using it.
There are tumblr subcultures that are more like a sequel to LiveJournal, which makes it more meaningful (at least to those users) than just a meme delivery device.
It also gets some use as sort of an improved Twitter. If you like a post you can, um, Like a post, reblog it as is, or reblog it with a comment of your own. You also get much better options for embedding media easily.
Of course, if you don't have any interest in having a LiveJournal and don't want an improved Twitter (with a lower user count), there may still not be any point to you using it.
But if we're to believe these companies are businesses that make money and put food on the table, that's hogwash.