I've been thinking about this conversation I had with Jason Calacanis in 2013.
It turns out, there's a lot of money in the world. The money is bored. Money wants to be spent! Money is intended to be gambled.
Three years ago Yahoo announced they were acquiring Tumblr. From the beginning, I was skeptical that it would work out.
To start, users hated the idea. They could sense that what they loved about Tumblr might get ruined. (One of my favorite quotes: "If our Tumblr founder needs money so badly why don’t we just have a kickstarter event to feed the founder?" :D)
Second, it didn't seem to make sense from a business perspective:
Will Tumblr users accept 4x ads?
— Justin Jackson (@mijustin) May 18, 2013
Tumblr's culture (both users and the team) were very anti-advertising. Yahoo responded by saying:
When you hear us talk about native ads, where the ads are every bit as good as the content, and maybe even make the content better — that’s what we are aiming for.
That strategy didn't last long. Here are the three ads rotating on my Tumblr feed today:
In fact, these are the only kinds of ads I see on Tumblr. What I mean is: these are the only three companies I see advertising there.
Yahoo promised that Tumblr's ad revenue would hit $100 million in 2015. In last month's earning call they admitted they'd missed that mark (although they wouldn't say by how much).
This whole situation makes me sad.
I've been an active Tumblr user for years (and I still love it). I loved how David Karp brought a sense of whimsy to his product. I loved how the community was weird and creative.
I've used Tumblr as a website host for my less-technical clients, and they love it. To this day, it's the most user friendly, mobile CMS I've seen.
Why do I care so much?
I guess I'm still asking the same question (both for Tumblr, and all founders):
What's the point of these acquisitions if they destroy the trust of users, alienate the founding team, and reduce the value of the business to nothing?*
For the past 5-10 years, the holy grail of building a startup was to get acquired. But with 70-90% of acquisitions failing, maybe it's time for a new goal? Why not focus, from the beginning, on delivering value that people will pay for?
For example, Tumblr could have offered pro-users an advanced CMS for a monthly fee. Squarespace is the current leader in this space (in 2013 they reported profits of $38 million). Tumblr is easier to use than Squarespace, has a better mobile app, and has content distribution built-in. I think Tumblr could have been a veritable competitor.
While there's lots of innovation in technology, there's not much innovation in business models. There's only a few ways to make money: you can charge for your product, you can sell ads, or you can do a bit of both. If you can't make those economics work on your own, will an acquisition really change that?
One more thing: I still don't know what it's like to be a venture capitalist. I don't get "big numbers." However, my guess is that in the next 5 years, the money is going to have to go from bored to smart.
* Yes, a few (like Facebook buying Instagram) go well. But according to the Harvard Business Review, 70-90% fail.