How Tumblr went from $1 billion on Yahoo payday to $3 million on sale

In this weekly series, CNBC takes a look at the companies that made the inaugural Disruptor 50 list, 10 years later.

Tumblr — the short form, multimedia blogging platform that in many ways defined the online sensibilities of a coming generation — turned fifteen this year.

Despite recent years of dwindling users and declining cultural relevance, 2022 offered a glimpse into the platform’s hope of refining popularity and relevance, as new leadership leans toward the creative spirit that first launched the platform.

From its beginnings, Tumblr has been distinguished by its rejection of the mainstream and its embrace of unfettered creativity.

In 2007, after stumbling upon a small blog called Projectionist, which together tracked tumblelogs—a different blog that prefers short-form mixed media posts to longer editorial posts—Tumblr co-founder David Karp became intrigued by this alternative to traditional blogging. He paused his software consulting endeavors and focused on creating his own blogging platform – later called Tumblr.

The platform has allowed users to post a myriad of different content, from images and gifs to music and text entries. Since its inception, Karp has prioritized the features he believed would spur the most creativity – and rejected the financial and incentive-based incentives he believed other platforms, such as YouTube and Facebook, depended on to drive usage.

At the time, he spoke explicitly on the topic, assuming directly the anti-advertising culture of Tumblr and anti-influencers against what he saw as the anti-creative practices of other major platforms. “The only real tools of expression these days are YouTube, which turns my stomach,” he said at the time. “They take your creative work – your movie that you’ve poured hours and hours of energy into – and put ads on top of it. They make watching your movie as holistic as possible. I’m sure it’ll contribute to the bottom line for Google; I’m not sure it’s going to inspire any content creators.”

Tumblr set itself up against other social media platforms at the time in another way – its focus on anonymity. Whereas Facebook aimed to put a name and face on its entire social network of users, Tumblr thrived on anonymous accounts, as the platform doesn’t display any number of followers or friends, no comment sections, and it didn’t have requirements for users to provide real or known names.

By the end of Tumblr’s first year, Spark Capital had invested $750,000 with a valuation of $3 million. And shortly thereafter, Spark Capital with Union Square Ventures invested another $4.5 million.

In 2009, Tumblr won the Crunchie Award for “Best New Startup,” and by 2010, it had amassed over 1 million users, prompting investors to pour an additional $85 million into the business, worth $850 million.

Tumblr was exploding, and by the end of 2011 the platform had amassed over ten billion blog posts.

Users are clearly drawn to the platform’s unique environment, where they can share images, aesthetics, art, music and ideas, and develop a sense of style and opinion, all without ever having to reveal their identity.

Celebrities, such as Frank Ocean and Taylor Swift, have similarly flocked to the site to interact with fans, shaped entire audiences centered around TV shows and music artists, and the Tumblr aesthetic that clearly marked the digital sensibilities of the mid-2010s, began to emerge.

But shortly after the Disruptor 50 debuted on CNBC in 2013, Yahoo acquired Tumblr for a then-staggering $1.1 billion, and Yahoo CEO Marissa Mayer promised “not to screw it up.”

But Yahoo faced an undeniable fact – the fact that Tumblr was never really able to become profitable. The platform has been used and loved by a huge user base, but this has not translated into profits. Yahoo attempted to monetize the platform through ad sales, which the previous leadership resisted, and had difficulty doing so. The fact that Tumblr does not require real user identities, and that adult-oriented content has permeated the platform, has alienated potential advertisers.

Furthermore, as social media began to shift toward a creative economy focused on the real faces and voices of creators, Tumblr, which has historically thrived on anonymity and lacked a strong video presence or follower count, struggled to keep up. The shifting leadership didn’t know much about the platform’s culture, and the platform’s commitment to anonymity and unattractiveness to advertisers led to Tumblr’s decline.

While Tumblr struggled to redefine itself, competitors like Twitter, Instagram, and Facebook developed new front-end features that attracted users by the masses. And Yahoo itself was struggling. In February 2016, after announcing a net loss of $4.44 billion in the fourth quarter of 2015, Yahoo announced that it had reduced Tumblr’s value by $230 million. In 2017, Tumblr was sold again, this time to Verizon. The following year, Apple removed Tumblr from its App Store citing child pornography on the app.

The leadership of Tumblr and Verizon responded by banning all explicit content, but the explicit content ban did not satisfy users or advertisers. It has been a long time and advertisers have not been willing to invest a large amount of money on a platform with unbranded content, while there has also been a mass exodus of users from the app with the explicit content algorithm being criticized for inaccurately reporting content. Within months of the decision being announced, traffic on the platform was down more than 30 percent.

In 2014, at least 84 million posts were published daily. By 2018, that number had fallen by more than 50% to 30 million. And in 2019, software developer Automattic acquired the platform for just $3 million, back to an initial valuation of venture capital funding from the company’s first year.

Despite Tumblr’s decline, Matt Mullenweg, CEO of Automattic, says the future of Tumblr is just beginning.

He’s spent the past three years aiming to fix bugs, past logged service requests, and platform design issues that Automattic inherited when it acquired the platform. “Honestly, over the past two years, we’ve done a lot of catching up with Tumblr,” he told The Verge earlier this year. “The problem was bigger than I imagined.”

Mullenweg also suggested that the company is in the process of reworking the extent to which Tumblr’s current explicit content ban, which has turned off many users. “If you look at our other products like WordPress.com, we have policies out there that allow more than what’s currently allowed on Tumblr,” he told The Verge. “That’s what we’re going to try to normalize, because these policies have evolved and replicated and worked really well to allow for the statue of David or the birth of Venus. For now, that can be removed – or in the old Tumblr, it could have been removed. This is clearly art.”

His vision also includes the possibility of conducting NFT experiments.

Evidence for the possibility of a second Tumblr renaissance lies in its user data – that 60% of Tumblr users are Generation Z – suggesting that although many of the original users have since left the platform, young people are still They flock to it, searching for the same marketplace of freedom of self-expression that once made Tumblr a huge hit with its creators.

“Art is essential to society. It nourishes the soul. It is a natural transgression,” Mullenvig told The Verge. “Art is beyond borders. We need to evolve how Tumblr operates to include that. It should be the best place on the web for art and artists — a place where they can have a direct relationship with their audience and people can follow things, not an algorithm trying to piss you off.”

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