Tumblr Business Model | How does Tumblr make money?

To imagine a way to connect with friends and other people without social networking is almost impossible. Social networking has helped us get closer to our friends and other people throughout the world, even if they are miles away from us. Social networking is a billion dollar industry and I doubt most of us even remember when it did start.

The First Social Networking Site, Geocities, was created in 1994, allowing users to create and customize their own websites. Since then this industry has only grown.

In today’s generation of a fast-growing user base for various social networking platforms, the competition for such websites has become really intense. Among these is Tumblr, a combination of a microblogging and social networking website that is working its way through this tough industry. In early 2017, there were a reported 341 million Tumblr blogs and billion of blog posts. With such huge numbers, you must have got an idea about how good the business model of Tumblr can be. But before moving on to Tumblr Business Model and how does Tumblr make money? it’s important to discuss and understand what is Tumblr and How does Tumblr work?.

What is Tumblr?

Founded on February 19, 2007, by David Karp, Tumblr is one of the leading blogging, microblogging, and social networking platforms. The inception of Tumblr began in 2006. David was interested in tumblelogs (short-form blogs) and had been eagerly waiting for one of the existing blogging websites to start one of their own. So after waiting for a year, when his expectations failed to pan out, he and developer Marco Arment decided to start their own tumblelogging platform. And so Tumblr was born and within two weeks the service had gained 75,000 users. Tumblr featured its first major brand advertising campaign in conjunction with Adidas in June 2012. On June 20, 2013, Tumblr was acquired by Yahoo! Inc. for USD$1.1 billion in cash; David Karp remained CEO. It is now under the parent company Verizon, which acquired Yahoo in 2016. Tumblr, as of August 1, 2017, hosts over 359 million blogs and more than 151.4 billion posts and over 35.3 million posts were created on the site each day.

How does Tumblr work?

Tumblr is one of the best places for creators to find an audience for their content. Tumblr operating model is similar to other social networking websites where users can create their own blogs and can follow, reblog, like and comment on other users’ blog and posts.

However, Tumblr business model offers its users a number of various other features which distinguish it from other social networking websites and gives them a chance to be as creative as they can to enhance their blogs. It uses a “dashboard” type interface for its bloggers which falls really convenient. The dashboard is the main page for a Tumblr user. It works as a live feed of all the blogs they follow. From this dashboard itself, users can like, comment, reblog other posts and share them on their Twitter and Facebook accounts.

Bloggers have an option to make their blogs private. They schedule their posts by delaying them over many hours or even days. There are Tags, which users can use, to find a topic of specific interest. Another interesting feature that most other popular social networking platforms don’t allow its users is to use HTML coding to change the look and appearance of their blogs. Users can also use a custom domain name for their blog. Moreover, the blogs optionally provide its users to submit questions to it, anonymously or as themselves, so that they can get a response.

A “fan mail” function, allowing users to send messages to blogs that they follow was introduced. On November 10, 2015, Tumblr announced an instant messaging function through which users can send messages to other users. Tumblr provides an app for its mobile users across IOS, Android, Blackberry and Windows platforms. An app for Google Glass was released in 2013 as well.

How Does Tumblr Make Money?

The platform has a vast user base; it is growing more and more every year. But the revenue model of Tumblr has been the same since the start. Tumblr makes money through advertisements.

Targeted advertisements

Just like other social media platforms with huge user base, Tumblr makes money through targeted advertisements. Since Tumblr place advertisements in the user dashboard, the company likes to call it sponsored post.

Tumblr’s sponsored posts are similar to their normal ones, other than the fact that they are highly targeted. For example, a sports company might place an ad that is mainly targeted to young adults who follow sports blogs and related ones. This ensures that the ad would be seen by maximum relevant audiences and thus it won’t be ignored easily. These type of advertisements are called in-stream ads. It is almost indistinguishable from a regular post and people are more likely to click on it as compared to a sidebar ad. Sponsored posts also have them located at the side—like traditional ads, and chances are the post might appear on Yahoo’s front page.

Sponsored Apps

Tumblr started displaying another form of ads called Tumblr Sponsored Apps. Just like sponsored posts, these too will be highly targeted according to people’s choices and the blogs they follow. However, the Sponsored App ads are available for a wider range of posts. The ads are for games and other mobile apps. This works like this: when a user clicks on such an ad, he is taken to the Apple app store or Google Play store or any other relevant platform, through which the user can download the app. Tumblr’s Spotlight is for bringing sponsored content to the front of the website. Tumblr says, “Spotlight drives tens of millions of followers each week.” It is another way by which Tumblr is promoting ads in a new way of displaying them to its users. David Karp still told AdAge that he would rather sell the company’s desks than put regular ads in the site.

Sponsored Day

The biggest form of advertising on Tumblr is the Sponsored Day advertising where brands can own the day at Tumblr by buying a cross-platform exclusive promotion on Tumblr. The brand gets featured on the homepage, the dashboard, as well as get an exclusive tab on the explore page filled with the selected content.

This type of advertising can be compared to that of Snapchat’s and suits best for any brand looking for building its brand equity.

Premium Themes

Another way by which Tumblr earns a revenue is by hosting a market place through which users can buy and sell premium themes for their blogs. Today, this has become widely demanded as people understand the growing importance of a good looking blog and the attraction it can create.

Promoted Posts

Tumblr also gives their users an option to promote their post. A user has to pay $1 and their post would be highlighted on the dashboard of their followers. “Every now and then, a post comes along that’s meant for big things,” explained David Karp. This feature was created precisely for this purpose, apart from generating another source of income. Tumblr also has preferred data partners that have direct access to the firehose to give brands and agencies an in-depth understanding of what’s happening across the network. This helps brands to track what is actually the impact of their posts on their users. This encourages them to put out more ads and increase their sponsorship.

Is Tumblr Profitable?

According to John Matthews, managing director of investment bank DeSilva+Phillips :

“Yahoo was making a speculative bet on future revenues that could, in theory, be achieved by tapping into the ‘millennial’ audience early. Yet Tumblr wasn’t designed by its founder David Karp to really be an ad-monetization platform.”

According to a Tumblr executive who left the company lately:

“Nobody at Yahoo ever understood what they bought and what Tumblr was. That fundamental issue is the core of lots of problems. If you don’t understand something, how can you sell it?”

Yahoo set some unrealistic revenue goals for Tumblr which the company failed to meet. There was a difference between the opinions of the two heads; Mayer and Karp. Some analysts consider Tumblr to an inconsequential part of Yahoo’s business. As we seen Tumblr’s main source of income is ads—just like Facebook and Twitter. But it cannot ask for a price that these social networking giants ask for. Its user base is also much less as compared to these websites (Tumblr’s users are counted in a far less specific way than Facebook and Twitter users). This makes it harder to Target ads. Also, users who log in with an email address do not have to provide information that is useful for targeting ads—information that Facebook asks for.

The revenue of Tumblr is too small when compared to its purchasing price. This is also a growing concern for investors and is not a good sign for the future of the company. Although Tumblr is an excellent platform for bloggers to put out their creativity, it must find a way by which it can increase its revenue and user base if it wants to compete with the existing social networking behemoths.

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