Tumblr is a blogging and social networking site started in 2007 by David Karp and Margo Arment. Tumblr posted its first advertisements in May 2012 and subsequently earned $13 million in revenue; to this day, the company generates a significant portion of its revenue from advertisements, in addition to sponsored posts and other services.

In May 2013, Yahoo (AABA) acquired Tumblr for $1.1 billion. The social networking company was then acquired in June 2017 by Verizon (VZ) in a nearly $4.5 billion deal that merged Yahoo and AOL into a new Verizon-owned company called Oath. Although Tumblr reports it has 450 million blogs, with millions of new posts per day, the social media website has struggled to make money over the last year.

On Dec. 3 of 2018, Tumblr’s chief executive, Jeff D’Onofrio, announced that the blogging site would ban "adult content," defining the term as any image containing “real-life human genitals” or “female-presenting nipples.” The decision came just one month after Apple removed the Tumblr application from its App Store after child pornography surfaced within the app. The timing of Tumblr's content ban suggests that parent company Verizon may look to monetize the company with a return to the App Store in the future. Further, Tumblr has struggled with a loss of traffic since the ban: global traffic for Dec. 2018 was 521 million, while the figure dropped to 370 million by February, according to The Verge.

Exact revenue figures for Tumblr are not publicly available, but based on its traffic figures, Verizon has expressed interest in trying to sell the company just two years after spending billions on it.

Following the ban on pornography in Dec. 2018, adult content provider PornHub expressed interest in acquiring Tumblr.

Tumblr's Business Model

Tumblr has four main sources of revenue: sponsored posts, sponsored video posts, sponsored days, and theme sales. For advertisers and businesses, sponsored posts are an effective way of targeting individual users by interest group and other demographic categories. Users themselves are also a source of revenue: Tumblr charges for certain types of blog designs (known as "themes") as well as other paid services.

Key Takeaways

  • Tumblr primarily makes money through sponsored content and paid services like special themes.
  • The company claims to have 450 million unique blogs.
  • Tumblr is currently owned by Verizon.

Tumblr's Sponsored Posts Business

Tumblr’s sponsored posts look identical to normal Tumblr posts, only they target users by parameters including gender, location, or interest. A sneaker company might place an ad targeting young adults who follow blogs about fashion or style, for example. These advertisements appear on users’ dashboards and are more likely to be clicked on than a sideboard ad because they are integrated into user content. Stream ads are now popular on other social media websites, including Facebook (FB), Instagram, and Twitter (TWTR). Additional "sponsored posts" are also located on the website's sidebar in the style of traditional advertisements.

Tumblr's Video Post Business

Tumblr also displays advertisements called Tumblr Video Posts. Similar to Sponsored Posts, Sponsored Video Posts target users based on their lifestyle choices. These videos play on continuous loop and pop out of the Tumblr page when a user scrolls so that they can be viewed without interruption.

Tumblr's Sponsored Day Business

Tumblr also offers a service it calls "Sponsored Day." According to the company, this service allows an advertiser to pin its logo and tagline to the top of the Tumblr dashboard for 24 hours and through the Explore page, ensuring enormous viewership by millions of Tumblr users.

Tumblr's Premium Themes Business

Users can also buy and sell premium blog themes for their pages on the Tumblr marketplace. A typical premium blog theme costs around $19 as of this writing.

Future Plans

Since its purchase by Yahoo in 2013, experts are not quite sure what to make of Tumblr. The site was always run independently from Yahoo and was rarely mentioned in their financial statements, and Tumblr's decline in value following the purchase suggests that Yahoo didn't know the best way to capitalize off of its acquisition.

A Potential Return

David Karp claimed that Tumblr would have $100 million in revenue in 2013 and Yahoo swore that it would exceed $100 million in 2015. After missing both of those marks, market analysts have come to view Tumblr as an inconsequential business segment for Verizon and Oath. Tumblr has not released monthly active user counts since 2013, but according to a recent survey from research company Statista, approximately 43% of 18 to 24-year-olds use Tumblr at least once a month.

After the decision to ban adult content and Tumblr's subsequent loss of user base and traffic, the future for the company is unclear. If Verizon does succeed in finding a buyer, it's likely that some aspects of Tumblr will change under new ownership, potentially including a reinstatement of its earlier, inclusive policy on adult content.

Three years after paying $1.1 billion for Tumblr, Yahoo wrote down the value of the social media platform by $230 million in 2016.

Key Challenges

Tumblr’s main source of income is stream advertising, similar to how Facebook, Instagram, and Twitter make money. However, Tumblr’s users base is significantly smaller than any of its social media peers, making it less financially viable to base its business model on advertising alone. To compound the problem, users who do log in do so with an email address and are not required to provide the wealth of ad targeting information that Facebook requests from users. Although Tumblr does technically make money, the social media website has yet to show signs that its $1 billion price tag was worth it.

The Difficult Conundrum of Tumblr

Most recently, Tumblr has struggled to maintain and grow its user base following last December's shift in policy that eliminated adult content. Neither Yahoo nor Verizon was adequately able to connect with Tumblr's user base and generate significant revenue from the platform. While Tumblr is undoubtedly popular, it still poses a dilemma for potential corporate buyers.