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

In this weekly series, CNBC looks back at the companies that made the Disruptor 50 list for the first time in 10 years.

Tumblr — a short-form multimedia blogging platform that in many ways defines the online emotions of the adult generation — turns 15 this year.

Despite declining users and cultural relevance in recent years, 2022 offers hope for the platform to regain its popularity and importance as new leadership leans toward the creative spirit that originally spawned the platform.

From the beginning, Tumblr has been characterized by its rejection of the mainstream and its embrace of unbridled creativity.

In 2007, after stumbled across a tweet called Projectionist, which tracks tumblelogs (a variation of blogs that prefer short-form, mixed-media posts to longer editorial posts), Tumblr co-founder Big David Karp became fascinated by this alternative to traditional blogging. He took a break from his software consulting work to focus on creating his own tumbleblog platform — which he later named Tumblr.

The platform allows users to post a myriad of different content, from photos and GIFs to music and text entries. From the outset, Karp prioritized features he believed would foster the greatest creativity and rejected the money- and status-driven incentives he believed other platforms, like YouTube and Facebook, depended on to drive usage.

At the time, he was outspoken on the topic, directly comparing Tumblr’s anti-advertising and anti-influencer culture to what he believed to be the anti-creative practices of other major platforms. “The only real vehicle for expression these days is YouTube, which makes my stomach turn,” he said at the time. “They put your creative work — the movie you put hours and hours of energy into — on it and put ads on it. They make watching your movie as vulgar as possible. I believe that will Helps Google’s bottom line; I’m not sure it will inspire any creators.”

Tumblr positioned itself against other social media platforms at the time in another way—it focused on anonymity. Facebook aims to provide names and faces to users’ entire social network, while Tumblr thrives on anonymous accounts, where the platform doesn’t show public follower or friend counts, has no comment section, and doesn’t ask users for real names or information.

By the end of Tumblr’s first year, Spark Capital had invested $750,000 at a $3 million valuation. Shortly thereafter, Spark Capital, along 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 more than 1 million users, leading investors to pour an additional $85 million into the business, valuing it at $850 million.

Tumblr is exploding, and by the end of 2011, the platform had amassed over 10 billion blog posts.

Clearly, users are drawn to the platform’s unique environment, where they can exchange photos, aesthetics, art, music and ideas, cultivate style and perspective without revealing their identities.

Celebrities, such as Frank Ocean and Taylor Swift, similarly flocked to the site to interact with fans, and entire fandoms centered on TV shows and music artists formed, forming a distinct Tumblr aesthetic that characterized digital sentiment in the mid-2010s ,Start to appear.

But shortly after CNBC debuted on the Disruptor 50 list in 2013, when Yahoo bought Tumblr for a then staggering $1.1 billion, Yahoo CEO Marissa Mayer pledged to “don’t screw it up.”

But Yahoo faced an undeniable reality — Tumblr was never truly profitable. The platform is used and loved by a huge user base, but this has not translated into profit. Yahoo has tried to monetize the platform through ad sales, something previous leadership has resisted and struggled to do. In fact, Tumblr doesn’t require users’ real identities, and adult-oriented content infiltrates the platform, avoiding potential advertisers.

Additionally, Tumblr has historically thrived on anonymity, lacking a strong video presence or follower count to keep up, as social media begins to shift toward a creator economy that emphasizes the real faces and voices of creators. Changed leadership knew little about the platform’s culture, and the platform’s insistence on anonymity and unattractiveness to advertisers contributed to Tumblr’s decline.

As Tumblr strives to redefine itself, rivals like Twitter, Instagram, and Facebook have developed new front-end features that appeal to a broad audience. Yahoo itself is also struggling. In February 2016, after reporting a net loss of $4.44 billion in the fourth quarter of 2015, Yahoo announced that it was writing down the value of Tumblr 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 in the app.

Tumblr and Verizon leadership responded by banning all explicit content, but explicit content bans left users and advertisers unhappy. It’s been a long time, advertisers are reluctant to invest a lot of money on a platform, the content on the platform is not friendly to brands, and there is also a huge loss of users from the app, explicit content algorithms have been criticized for being inaccurate mark the content. In the months after the decision was announced, the platform’s traffic dropped by more than 30%.

In 2014, at least 84 million posts were published every day. By 2018, that number had dropped by more than 50% to 30 million. In 2019, software developer Automattic acquired the platform for just $3 million, returning to the company’s initial venture capital valuation in its first year.

Despite Tumblr’s decline, Automattic CEO Matt Mullenweg believes Tumblr’s future is just beginning.

For the past three years, he has been working on fixing bugs, backlogs of service requests, and platform design issues that Automattic inherited when it acquired the platform. “Honestly, we’ve been chasing Tumblr for the past two years,” he told The Verge earlier this year. “And the problem is bigger than I thought.”

Mullenweg also said the company is redefining the scope of Tumblr’s current explicit content ban, which has driven so many users away. “If you look at our other products, like, our policies there allow far more content than Tumblr currently allows,” he told The Verge. “That’s the normalization we’re trying to achieve, because these policies have evolved and iterated and have worked well, allowing for the birth of a statue of David or Venus. Now, it might be removed — or in old Tumblr it might be removed. It’s clearly art,” he said.

His vision also includes the potential for NFT experiments.

Evidence that Tumblr does have the potential for a second revival lies in its user data—60% of Tumblr users are Gen Z—suggesting that while many original users have left the platform, young people are still flocking to the platform, looking for The marketplace for free self-expression that once made Tumblr popular with creators.

“Art is necessary for society. It nourishes the soul. It is naturally illegal,” Mullenweg told The Verge. “Art pushes boundaries. We need to improve how Tumblr moderation works to cover that. It needs to be the best place for art and artists on the web — a place where they can have a direct relationship with their audience and people can focus on things, not try to Angry your algorithm.”

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