People are all up in a huff because Facebook paid a billion dollars for a company that hasn't actually made any money - Instagram.
I still think it makes sense - Facebook has the money to spend, they want the brand and user loyalty, and the technology/talent is nice too. If they hadn't, Twitter would have, and Twitter already edges out Facebook in the mobile space. The buy got me thinking about company buys in general though, and whether my favourite startups/services are going to be bought.
I love Twitter, but it seems too big to be bought these days.* So that leaves me with my other favourite non-profitable web company, Tumblr. Tumblr was valued at around US$800 million last August; it will have risen since then, but this still puts Tumblr at a buyable price. For the record, I think this valuation is either criminally low, or Instagram's was criminally high.
So who would want to buy Tumblr and what would they get for their money? Tumblr's About page gives us an idea of the numbers. At the time of writing, there are 51 million Tumblr blogs with 63 million posts today, and 21 billion posts in total. Yes, that's an average of 400 posts per blog, which is some crazy good user engagement. Now, 51 millions blogs does not mean 51 millions users: Tumblr users can have as many blogs as they like. Still, I would guess around 90 per cent of people, and this is based on nothing but anecdotal/using the service daily for three years evidence, have only one blog. The number is pretty impressive, especially when you take into account that Tumblr users spend an average of 89 minutes a month on the service. Tumblr has a few revenue makers, premium themes and highlighted posts, as well as flirting with sponsored tags etc. but nothing quite solid yet. It costs a whole lot to run, you need expensive servers/engineers to chew through 63 millions posts a day, especially when most of them are pictures.
For whatever you would pay, you would get around 50 million highly engaged users to target ads to. You don't quite have Facebook/Google levels of pesonal data, so you can't target the ads as well as they do, but you can take into account tracked tags/frequent words when serving these ads. You also take on a pretty hefty cost just to keep the service going.
Then, who has pockets deep enough? Apple, Google, Facebook and Microsoft, really. We can strike Apple off the list immediately (see my Twitter * at the bottom of this post.) Microsoft buying Tumblr would prompt some pretty heavy user outrage (okay, anyone buying Tumblr probably would, but still) and it doesn't really make sense within Microsoft's pared down focus these last few years, so let's take them off too. Now, Google already has a relatively successful blogging platform, Blogspot, and they might not be a fan of how closed Tumblr is in some respects. Still, it wouldn't be that crazy - it would definitely give them a bigger foothold in social, and even if they kept the site as a completely separate service they would get more and more data from you. Think YouTube - you still use it as a separate site, but you login with Google and are served hundreds of targeted ads. Facebook? Same deal really, ads-wise. Pre Instagram buy, I wouldn't think Facebook would be an option, but now I can kiiiiind of see it. They would keep it as a separate service and probably attempt to compete with Pinterest with it. Facebook are looking to the future though, mobile that is, and while Tumblr is definitely decent on mobile, probably the best mobile blogging platform in fact, it isn't quite a mobile company in the same way that Instagram is.
Where does this leave me? Well, realistically, it doesn't seem very likely. Tumblr looks as though it's following Twitter - continuing to grow at an astronomical rate without really making money, experimenting with new revenue sources rather than just plain old ads. I have a bit of a webcrush on Tumblr, if you haven't noticed, so I'm hoping they become profitable on their own terms eventually. What do you think? If you were in the position of making acquisitions at Facebook/Google, would you consider it, or are there other companies you would buy?
*Sure, there a few companies with pockets deep enough, but barely. Twitter is valued at around US$10 billion, and you would need to pay a fair bit more than that to actually buy it: Instagram was valued at US$500 million just a few days before the purchase. The only company with enough cash on hand to realistically consider it would be Apple, and Apple don't buy big web companies, they buy small startups for the technology/talent.
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