Kirk Klasson

Big Bets and Long Tails…

The future belongs to the brave, the bold and those few who can still do simple math.

So today’s WSJ along with every other business media outlet reported that Yahoo! bought Tumblr for $1.1B in an all cash deal. According to the Journal:

“New York-based Tumblr, founded in 2007, has 175 employees, more than 108 million blogs and, according to comScore Inc., SCOR +0.25% had nearly 117 million unique users world-wide in March.”

So let’s see, on average that works out to about one unique user per blog per month. Understandable since folks that author blogs like to go look at them. But these numbers would also suggest that if there is a power curve here, there is no meat to it, just one long, flat, shallow tail. However, other sources suggest that Tumblr’s numbers were more like 40 million active users per month and that it posted less than $5m in revenue last year. This would reinforce the notion that there is no cohesion of interest among Tumblr’s many communities, so the long tail just got shallower and at $5m per year, it would take about 200 years to produce $1b in revenue. Simple math.

So what marketing entities would see this as an attractive means to increasing share of anything?

The so-called strategic imperative here was for Yahoo! to increase its social media and mobile presence with a younger cohort than the one that currently frequents Yahoo!. Given that it has no proprietary search or mobile platform, Yahoo! is basically DOA when it comes to mobile (see Prophets on the SILK Road, October 2012). And while an appreciable number of Tumblr members access services using mobile devices, as a social media site, that doesn’t seem to be the primary reason why members and traffic gravitate to Tumblr.

Tumblr is unique as a social site as it promotes the creation of blogs, so called micro–blogs, dedicated to specific personal interests. A few even have a following of regular visitors. While many of these blogs contain original content created by the author there are numerous blogs that cobble together material from other sources, this is particularly true when it comes to the images that are employed. Hence, for many, Tumblr has become the preferred publication medium for those who wish to share a fetish, sometimes nothing more than a fan-like interest in a given subject but more often than not a fetish of a sexual nature. Which would explain why so many say that Tumblr is just another porn site, when it’s really more like a re-tweet of previously published images with a particular point of view. Again, not a particularly compelling marketing medium unless you happen to be interested in marginal increases in generic brand awareness among extremely eclectic segments; bill boards might be equally effective.

Another aspect somewhat unique to Tumblr is that a good deal of the content posted to these blogs is actually copyrighted material that is sourced from other sites. Since Tumblr hasn’t been aggressive in monetizing this content, so far this hasn’t proven to be much of an issue. Most royalty free Internet content stipulates that so long as you are not attempting to monetize the content then you are free to reproduce and use it. And even copyrighted material can be redistributed under fair use standards. This makes sense at least on one level as copyrighted material shared in this fashion essentially amounts to free marketing, if you like what you see you might go back to the source to explore a licensable interest.

A pretty sure bet…

Billion dollar splurges for unproven Internet sites are not unusual, in fact, they appear to be conventional wisdom for established Internet players. Goggle did it with Youtube, Facebook did it with Instagram and even Yahoo! has a history of billion dollar deals. Like Tumblr, both Youtube and Instagram were content plays with largely unproven or yet to be proven revenue models. Unlike Tumblr, the content posted to these sites was largely original and personal and there were few, if any, prior ownership or copyright issues involved. What most of these acquisitions have in common though, other than their billion dollar price tags, is the implicit assumption that they can somehow reinforce a walled-garden value proposition for attracting and sustaining consumer relationships on the Internet, a hypothesis that has already been tested and refuted by both Yahoo! and AOL (see Trouble in Paradise…, May 2012)

Now all these sites employ terms of use that call for the acknowledgement that any publication of content automatically grants to the service in question a royalty free license to distribute submitted content without limitation. And Tumblr’s Terms of Use also state that by virtue of submission you acknowledge that you have the rights to distribute the content submitted. The site even goes further acknowledging that copyrighted material might be published without the owner’s consent and provides a procedure to address such situations. But given the tremendous amount of content re-tweeted on Tumblr it is doubtful that any of the users employing this practice in-fact possess the rights to the copyrighted material that is being posted. And if you happen to be the owner of re-tweeted content then good luck trying to find it. Again, not necessarily a problem if you have no intention of monetizing the publication and distribution of the content.

But if you’re into something for over a billion dollars, it’s a pretty sure bet that you are going to try to sweat that asset as aggressively as possible without, of course, screwing it up. It’s also a pretty sure bet that any copyrighted material that has been driving all that traffic is going to show up and ask for their share of the action, as small as that might be, or demand that the content be taken down.

And is it going to be a pretty sure bet that by the time this all gets sorted out, the revenue potential of
Tumblr is going to be compromised. By how much? Impossible to say, but one thing is certain, by the time that number is determined, this transaction will be in the dust bin along with the 65 others totaling nearly $17.0B that this shop has produced.

The only question is whether or not Yahoo! will be in there with them.

Graphic courtesy of SuZQ Arts and Images

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