Further, businesses like Twitter, Facebook, and Tumblr have strong incentives to defer seeking revenue as long as possible. The businesses will only succeed at large scale. Time spend on early revenue is a distraction from what really matters, which is pleasing users. Better to wait until you have a large share of the market. So I think it's dangerous to look at Tumblr's current revenue and assume that a) that says much about their future revenue, or b) the company doesn't have a pretty solid revenue plan that they're waiting to roll out.
What is relevant is whether she can get the Tumblr employees on board with her monetization plan. David Karp doesn't seem like the kind of guy that can get on board with someone else's vision. I have a feeling he will be sidelined and then gone at the first available opportunity.
There is a third option, of course: that they have a stupid plan.
- Probability that social media users are fickle and Tumblr is on a death march where no plan could fix the business: 20%
- Probability MM has a good plan, given that Tumblr's employees and investors didn't have a plan to turn it into a real business: 30%
- Probability that Yahoo can execute the plan, given they have a good one: 50%
Thus P(This ends badly for Yahoo) = 1- .8 * .3 * .5 => 88%
In other words, probability is more or less irrelevant, because if you fail it means a small loss which does not risk the company's future, on the other hand, if you don't acquire, and the small business succeeds big time, then that is a big loss, and may eventually kill you.
I don't see from your argument that probability is a bad tool in analyzing this situation.
Tumblr is the new Yahoo.
What has been Yahoo up until now will begin to play a secondary and support role to Tumblr. So Flickr becomes the preferred photo sharing service for Tumblr.
Unlike the traditional acquisition where the acquired company disappears, this is the case where the acquiring company will disappear.
Yahoo's ability to stay alive as a large profitable business for another 10 years is dependent upon this transformation.
It's only through this lens that any kind of financial analysis makes sense. Any traditional, or sensible financial analysis will come the logical conclusion that this is an utterly foolish move.
But if you're Google in 2002, Pay Per Click Ads is the company bet -- and today's $300B Google is the result.
Meyer is making the equivalent of Google's PPC bet -- however, the goals are not massive profits as Google's were, but Meyer's goal is to return Yahoo to a role of prominence and profitability as a consumer property.
(that being said, my bet is that this turns ends badly for Yahoo and especially the shareholders).
If you have a brand problem you go younger, later on these people are a massive force if you do it right. It could be argued that Yahoo! is really a ladies platform and that is also what brought Facebook to critical mass (in fact top gamers in the casual space are middle-aged women, they also consume lots of content like Yahoo broadcasts). My wife loves Yahoo. She is buying future.
And yes, Dave here is right, don't think for one second that controlling stake in a company means it won't change, not alot soon, and maybe carefully. But, she has a grasp on the future with this buy. Mayer is the same individual that oversaw product during Blogger, YouTube, etc at Google. Meanwhile at the old Yahoo, Flickr and Delicious were not used correctly.
The only thing I didn't like about Mayer's moves is still the remote worker changes she enforced, I think that is a huge limiting factor for Yahoo talent. Will Tumblr's team be forced to move into the Yahoo! offices? Is a remote office too remote? I think moving operations that work like that would be a mistake.
This sentiment has been surfacing here more and more lately it seems, and frankly, I find it sickening.
Companies make money.
Maybe I'm crazy, but the idea of constantly seeking funding for my company instead of simply asking my customers to pay me just seems absolutely ludicrous.
The reality the tech industry is facing at the moment is this, however -- there are three things people are building these days:
1. Businesses.
2. Products.
3. Features.
You're absolutely right. If your goal is to build a business - you should be focused on making money and keeping the business viable. Long term, businesses can and will be self-sustaining.
Products, however, don't need to be. Lots of people are building products these days and making a boatload of money selling them to businesses. There's nothing wrong with it - it seems, at times, to be a very good way of making money.
What makes you (and me) sick is when people mix up what's what.
So we should amend..."Time spent on early revenue is a distraction"...if your goal is to build a great product.
(Features are what you think they are - just products with too narrow a focus to stand by themselves.)
But there are companies where the user is the product. In that case, early monetization can substantially harm your goal of creating a valuable asset. All of the companies I listed are good examples of that.
Unfortunately, their popularity makes entrepreneurs think their products can also be businesses. The obvious failure is people who just don't think about revenue.
The subtle failure is people who say, "Oh, we'll run ads!" without every understanding what that means. I know people who have built ad-supported businesses, and at this point it's an extremely challenging space.
Of course, that might lead you to wonder "Then WTF are you doing on here right now?" Well, simply, I'm stuck at my $DAYJOB right now and don't have anything productive to do, but it would be awkward to be working on my project from here. But in terms of time I spend on the startup, I'm trying very hard right now to stop looking so much at "big picture" stuff, narrow the vision, reign in my ambitions (for now) and focus on "what will get us to revenue fastest?"
Maybe I'm crazy, but the idea of constantly seeking funding for my company instead of simply asking my customers to pay me just seems absolutely ludicrous.
FWIW, I agree 100%
If your business model is "sell user eyeballs", then you have to be really large to have a real business. And the eyeball-selling market is pretty well-understood at this point, so it's not like "companies will buy ads against demographic X" is not a hypothesis you need to test by trying it.
Well they clearly aren't. The company has received $125 million in funding to date, including $85 million about 18 months ago. Their costs are obviously well over $14 million a year.
They could have take the $85 million because the getting was good and they wanted substantial independence for several years. (This happy funding climate won't last forever.) Or they could have taken it with an intention to spend a lot on marketing. Or they could have done it so they had a war chest for small acquisitions, or for major expansion.
Even if their current burn is over $14 million, which I agree is plausible, I still suspect that they could be in the black on that if they wanted. They have significant server operation costs, but I think even that plus a solid staff would fit.
According to that, Tumblr had 20 billion monthly pageviews around september 2012. That is about 250 billion pageviews a year.
http://www.quora.com/Amazon-Web-Services/Roughly-how-much-do...
Gives a very rough estimate of about 50k in server costs for 1 billion page views. That would be $12 million a year in server costs alone.
As of May, they had 178 employees. It is going to take a lot more than $2 million to pay those employees, then you have all the on costs, office space, advertising, etc, etc. I'd be very surprised if they weren't losing more than $15 million a year, and going on those quick calculations + knowing how much money they have raised, I think they're at a net loss of about $40 million a year, or more.
I said "its obvious" based on the rumours they are running out of money plus knowledge of when they last raised money. But doing a quick calculation as shown here throws up the same conclusion.
I like Dave and I respect what he has done for blogging and the community, I also understand his angst here. However I think it is misplaced.
There are two things people do in commerce, one is to innovate/invent and the other is to capture (or extract if you are being cynical) value from that innovation.
Tumblr, like GeoCities before it, have done well on the innovate/invent part and failed at the capture value part. Once at a meeting of west coast venture capital types I heard someone call a business 'making mud pies'. In developing that concept further, they described a business where the founders were having a great time building their technical vision and yet had failed to convince anyone outside of their small circle of friends that it was worth paying money for. Like kids making mud pies or finger painting, the act of creation was the only reward they were getting.
In that sort of situation it's a matter of time before the entity ceases to be.
By all reports Tumblr (like GeoCities before it) was running out of money. If that is true, then Yahoo! has simply saved them from dissolution and retained the traffic (and more importantly the habits of visiting) that folks on the net have built up. They think they extract value out of it, and perhaps they can do so with only a smaller increase in their total expenses than Tumblr existing burn rate. That is a bet they make with themselves.
But let's return to Dave's angst for a minute. Dave saw the deal with Symantec as Symantec getting this great thing they had produced with him to lead it strategically, from Symantec's perspective apparently they saw other things in the deal. Aligning thoughts and visions requires the the guy (or gal) being acquired do three things;
1) They need to understand the real reason they were acquired (was it for people, tech, traffic, brand?)
2) They need to figure out what they want to achieve out of the joined entity (recognizing it may not be possible based on #1)
3) They have to communicate a plan and build a following to insure that what they are trying to do is understood by the organization rather than just one or two people.
Its the strange thing that leaders are often as much controlled by their organizations as they are in control of them. There are few benevolent (or even malevolent) dictatorships, usually there is a group concensus about what is being done. And without that, not a whole lot gets done.
Marissa has stated she doesn't want to 'screw up' this deal. And I am pretty sure she is sincere in that, but it is less up to her than she might like.