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David Karp's Multimillion Dollar Plans for Tumblr

Facebook is the internet’s phone book. Twitter is its wire service. In Tumblr, 26-year-old Karp has built the web’s canvas. Now can he shape it into a money machine?

Published: Mar 4, 2013 06:17:07 AM IST
Updated: Mar 4, 2013 08:16:46 AM IST
David Karp's Multimillion Dollar Plans for Tumblr
Image: Walter Smith
David Karp, 26-year-old founder of Tumblr is expected to turn the web’s canvas into a money machine

David Karp is in the midst of a rite of passage that seems universal for the young tycoons of the internet’s social era: He’s buying himself a proper swank pad. Karp’s choice says a lot about him—and Tumblr, the blogging platform he founded nearly six years ago. The 1,700-square-foot, $1.6 million loft is quite modest for a 26-year-old whose net worth, on paper, exceeds $200 million. That’s in part because it’s located in the world’s hipster capital, Williamsburg, Brooklyn, where irony trumps showiness—he’s quite possibly the richest person in the neighbourhood. But the most telling feature is on the inside, which contains… virtually nothing. A spartan bedroom with a half-empty closet. A living room area with nothing but a sofa and a TV. (One concession to opulence: A restaurant-grade kitchen for his girlfriend, Rachel Eakley, a trained chef.) “I don’t have any books. I don’t have many clothes,” Karp shrugs. “I’m always so surprised when people fill their homes up with stuff.”

“He owns, like, three items,” confirms Marco Arment, Karp’s first and, for a long time, only employee at Tumblr.  

For Tumblr’s CEO, minimalism isn’t just an aesthetic choice. It’s the key to freedom. When he travels he avoids making plans more than a few days in advance, even on his trips to Japan, and packs only the sveltest of carry-ons. “It’s my Jason Bourne or James Bond fantasy, wanting to be perfectly mobile,” he says. One of Tumblr’s directors, Roelof Botha of the Silicon Valley venture firm Sequoia Capital, recalls showing up at a board meeting in New York toting only “the tiniest of duffel bags” for his trip. “David took one look at me and said, ‘You really brought all that stuff?’”

Karp’s intolerance for the inessential imbues Tumblr. Where others looked at the twin revolutions of blogging and social networking and saw new tools for communication, Karp saw possibilities for making them radically easier and more intuitive. Tumblr lowered the bar to creating a beautiful, dynamic website and raised the payoff in the form of positive social reinforcement.

If Facebook is where you check in with your real-life friends and Twitter is how you keep up with current events, the Tumblr experience can be boiled down to people expressing themselves publicly. Like those other two networks, Tumblr is organised in the form of streams of posts. But it’s far more sensory and emotive, a swirl of photographs, songs, inside jokes, animated cartoons and virtual warm fuzzies. On the main Tumblr feed compiled by its editors, a photo journalist’s visual diary of Afghanistan might be followed by a cartoonist’s impressionistic drawings of Darth Vader, which give way to a gallery of hamsters that look like President Obama.

Users make sense of the chaos with the aid of a dashboard, the interface for finding and following other users and keeping track of the feedback their posts receive. Hearts are good; ‘reblogs’ are better, suggesting another user liked your post enough to share it with his or her followers. The tools for creating these multimedia posts are simple: Seven buttons that let you add text, photos, hyperlinks, video, music, dialogues or quotes with a click.

The result: Classic hockey-stick growth that’s getting steeper by the month. In November it shouldered its way into the top 10 online destinations, edging out Microsoft’s Bing and drawing nearly 170 million visitors to its galaxy of user-created pages, according to the measurement firm Quantcast. Tumblr’s tens of millions of registered users create 120,000 new blogs every day, for a total of 86 million and counting, which drive some 18 billion page views per month. Its latest funding round, in September 2011, valued Tumblr at $800 million, making Karp’s 25 percent-plus stake worth more than $200 million. Then its traffic doubled.

An impressive start. But this is Tumblr’s make-or-break year, where it needs to prove three things: That it can continue the growth. That it can actually make money. And that David Karp, the creative genius and quintessential minimalist, is the right guy to lead Tumblr to glory. “The road is littered with dead companies that made the wrong move at the wrong time, the MySpaces of the world,” says Gartner analyst Brian Blau. “They’ve got to be really careful.”

Karp has momentum. When Hurricane Sandy flooded massive data centres in New York, knocking the Huffington Post, Gawker and BuzzFeed offline, all three gravitated to Tumblr as their temporary publishing platform. Hollywood has taken note, with no fewer than three new TV series in development spawned by Tumblr sensations that went viral. And this: When Oxford Dictionaries USA designated ‘GIF’ its word of the year for 2012, it credited Tumblr with pushing the term, a technical name for a type of compressed image file, into the mainstream. “The growth we’ve seen in the last year just totally overshadows everything that came before it,” says Karp. “To be honest, it’s a place I never thought we’d be.”

David Karp's Multimillion Dollar Plans for Tumblr
Image: Walter Smith
CREATING THE CREATOR’S SOCIAL PLATFORM Tumblr is bulking up at its headquarters in NYC’s Flatiron District

And, in some ways, never hoped to be. Tumblr is growing up and, as anyone with a baby or a mortgage can tell you, that means expensive complications. “The pressure on Internet media companies to deliver revenues is going way, way up,” says Gawker Media owner Nick Denton. Karp, who once showed disdain for advertising, finally allowed ads on Tumblr last May. The company finished 2012 with $13 million in revenue; the hope in this ‘leap’ year is that it’ll get to $100 million.

If it can hit that sales figure, profits should follow—the key benchmark even for social media firms, which, until Facebook’s troubled public offering, could get away with being the shiny new social platform.

How soon is that? Money isn’t that pressing an issue—yet. Karp says Tumblr has banked “most of” the $125 million it has raised. But Tumblr spent an estimated $25 million on its operation last year and will likely have to shell out up to $40 million this year. In 2013 David Karp has a race on his hands: Can he break into the black before needing to hold his hand out again for investors?

When he started down the path that led to Tumblr, Karp was just another teenager obsessed with tech and too smart even for his elite public high school, New York City’s Bronx Science. Karp’s mother, a teacher on Manhattan’s Upper West Side, approached Fred Seibert, a family friend whose children she taught. A longtime executive at MTV Networks and Hanna-Barbera, Seibert was running his own animation production company. “David’s mom said, ‘Fred, your business has computers in it, right?’” Seibert recalls. “‘You know, my 14-year-old is really interested in computers. Could he come by and visit?’”

The visits became regular until, Seibert recalls, “one day, he said, ‘I can come by every day now—I’m going into home schooling.’” That, he decided after crunching admissions statistics, was his best shot at getting into MIT—the best launchpad for computer engineers. But MIT was not in the cards. By the time his peers were writing application essays, Karp was working as head of product at the parenting website UrbanBaby. After CNET acquired the site in 2006, Karp used the proceeds from the sale of his shares to start his own little for-hire development firm, Davidville, where he also dabbled in creating products of his own. While he’d built a multi-user blogging platform for Seibert’s company, he wasn’t satisfied with it. “One day he came by and said, ‘This blogging thing is really hard. Isn’t it too hard?’” recalls Seibert, who had no idea what Karp was talking about. Knowing he was out of his depth, Seibert turned to one of his own investors, Bijan Sabet of Spark Capital.

They got together, and Karp showed him a web application he’d invented that made creating and sharing all kinds of digital content—text, photos, videos, hyperlinks—remarkably simple. It was Tumblr. “I was just blown away,” says Sabet. “I hadn’t seen anything that beautifully designed.”
But getting Karp to commit to it as a business was tough. “David didn’t conceive of Tumblr as anything other than a tool he wanted for making his life better,” says Seibert. “He exhibited a passion early on, but it wasn’t a passion for building a business.”

“I basically spent the summer of 2007 trying to talk him into starting a company around it,” adds Sabet. When Sabet brought Karp his first term sheet for a proposed venture investment, Karp balked, saying it was “too much money with too much pressure.” But when the kitty was reduced to $750,000 at a valuation of $3 million, led by Spark and the famously founder-friendly Union Square Ventures, Karp allowed himself to be persuaded.

As Tumblr has grown from embryo to leviathan, Karp has had to learn to subordinate his own instincts and inclinations to those of Seibert, Sabet and his other investors, whom he refers to collectively as “my mentors”.

In its first year Tumblr was a two-man shop, Karp and Arment, whom Karp recruited via a Craigslist ad. In April 2008 they hired Marc LaFountain to handle user support, but he was in Virginia, and it took over a year before he met either of them in person. “So even when he had an employee, it didn’t feel like we did,” says Arment.

Around this time Karp told Sabet he’d been looking at the organisational structures of other digital media companies, from Craigslist, which had 26 people, to MySpace and Facebook, which each employed roughly 1,000. “And he says, ‘I could do it with four people for the rest of my life,’ and he really believed it,” says Sabet.

David Karp's Multimillion Dollar Plans for Tumblr
Image: Walter Smith
THE ART OF AUSTERITY “It’s my Jason Bourne or James Bond fantasy,” says Karp, “wanting to be perfectly mobile”

But reality bit. As Tumblr’s user base climbed into six and seven figures, the site increasingly had stability issues. Product fixes and improvements got stuck in a bottleneck. “We were getting overwhelmed,” says Arment. “I was a little too clever at times,” Karp acknowledges. “The fact that I didn’t have the foresight to build out a bigger engineering team earlier cost us some serious months. The reason we’re so much more productive today is we’ve got people now who’ve been through this stuff before.”

But there’s a trade-off. The bigger Tumblr gets, the more time Karp spends doing things that don’t play to his strengths. Schmoozing clients, dazzling analysts, rallying the troops, raising the fear of God—these don’t come easily to the reserved Karp. “We’ve never seen him angry,” says Rick Webb, who helped run a digital marketing agency, the Barbarian Group, before joining Tumblr as its ‘revenue consultant’.

For years most business-side duties were handled by John Maloney, whom Karp had hired as Tumblr’s first president after working for him at UrbanBaby. But as the company took on executives to oversee those areas, Maloney told Karp he was ready to leave. He left last April, with Karp taking over his reports.

These days what keeps Karp up at night isn’t buggy code but “team stuff. Am I being a good enough leader for these guys? Am I giving them everything they deserve and setting this up as a collaborative, positive environment? When it feels like it’s slightly off, it’s all I can think about until I fix it.”

“The process is not completed, but he could probably give you a pretty good assessment of how far along he is in that process,” says Brad Burnham from Union Square Ventures, a Tumblr board member.

Yet the process might well end with Karp back where he started. Ever since Maloney left, insiders have discussed bringing in a bigger league version of him, à la Sheryl Sandberg at Facebook—adult supervision, leaving Karp free to focus on product strategy and vision. “David’s smart enough that if he needed to manage, he could, but he doesn’t relish that, so why put him in that box?” asks Sequoia’s Botha.

“I do think it’s a good idea,” says Burnham of hiring a strong number two with a broad remit. But that doesn’t mean it’s imminent. “It’s going to take a pretty special person to go into a situation where they really complement David’s strengths and work effectively with him.”

No one is talking about booting Karp from the top spot. “My commitment to David is he’s CEO as long as he wants to be CEO,” says Sabet. Adds Botha: “Tumblr wouldn’t be Tumblr without David. He needs to be a part of the core business if we’re going to make this a spectacular success.”

For Tumblr spectacular success now boils down to one metric: Profits. Facebook has proven social’s revenue efficacy several times over—when it first crossed into the black in 2009 and, more recently, when it revealed that its nascent advertising efforts on mobile are already driving $3 million in revenue per day. Twitter, while smaller, is on a similar trajectory, with more than $545 million in ad revenues expected in 2013, according to eMarketer.

Tumblr, says Sabet, is “where Twitter was two or three years ago.” Now the company has to evolve into a sales machine, something that’s clearly not Karp’s forte: While no longer a teenage shoe gazer, he’s still too shy and introverted for the table-pounding, back-slapping role. That explains why Tumblr poached Groupon’s Lee Brown, a 10-year Yahoo vet, to become its head salesman last September and armed him with a dozen sellers, focussed on bringing in sponsors like Adidas, GE and Coca-Cola.

None too soon. Until ending its ad ban in May, the only real monetisation of Tumblr came from other people. More than 50 writers have leveraged their Tumblr blogs into books, and some have scored TV deals, including Lauren Bachelis, whose Hollywood Assistants is being adapted by CBS, and Emma Koenig, whose F--k! I’m in My Twenties is headed to NBC. Commerce within Tumblr has mostly revolved around the creation and licensing of design ‘themes’ to users looking to spruce up their pages. “For the people who are making those themes, it’s incredibly lucrative,” says Chris Mohney, editor-in-chief of the in-house news organ Storyboard. But it’s less so for Tumblr itself, whose cut of the sales adds up to less than $5 million annually, reports the research firm PrivCo.

But if Tumblr’s moneymaking efforts to date have been modest, its ambitions are outsized. Karp proposes to reinvent internet advertising and to do it while eschewing the path blazed by Google, Facebook and Twitter.In his critique of those companies’ offerings, the normally polite-to-a-fault Karp doesn’t pull punches. “Hyper-hyper-targeting of little blue links” is how he dismisses them. In 2010 he made headlines by publicly declaring that web advertising would never wind up on his network, a remark Karp’s nervous investors have been urging him to explain now that the company’s sales reps have started calling on Madison Avenue.

Here’s what he says he meant: Those “little blue links” are effective, but only in the most limited way. “It’s about grabbing you at the moment you’re ready to buy,” he says. Google, Facebook and Twitter can use a combination of behavioural targeting and borrowed social relevance to do that with a high degree of success, but they have little effect on consumers’ attitudes and emotions. That’s the job of so-called brand advertising.

Right now, despite the great migration of time and money to the internet, almost all brand messaging occurs in traditional media, especially TV.

“There’s $50 billion in brand, but none of it’s really on the web,” says Tumblr’s revenue guy Webb.

The spenders of that $50 billion, Karp says, are awaiting digital advertising formats whose artistry and expression forge an emotional connection with consumers—the sort that can make them laugh, cry or call their mothers.

The same tools that make Tumblr a favoured medium for creative types make it the ultimate blank canvas for marketers. What brands pay for isn’t the ability to create content—that’s free for anyone—but the ability to promote it in two modules central to the Tumblr user experience: Spotlight (an accounts-to-follow suggestion) and the Radar (editors’ picks). Together these two venues generate more than 120 million impressions per day. The vast majority go to organically popular content, but five to 20 percent of those are made available for paid promotion. Rates are relatively high: The cost for a thousand impressions (CPM) ranges from $4 to $7, pushing into the premium end of the digital ad market. (Facebook’s CPMs range from 30 cents for small, generic banners to almost $10 for social ads delivered over mobile devices.)

Ad agency Droga5 used Tumblr to promote the launch of Kraft’s new, youth-targeted chewing gum brand, iD. One piece of content created for the campaign, an animated GIF of a dinosaur, was promoted through Radar and got more than 40,000 interactions, according to Chet Gulland, the agency’s head of digital strategy. About half were reblogs.

“It was really exciting to have a platform like that where you could reach a huge audience of exactly the right people and they seem so willing to engage with it,” he says.

The iD campaign also ran on Facebook, which, like Tumblr, charges for the ability to promote content. But recent changes to the algorithm governing Facebook’s main news feed have made it harder for brands to get their content seen without paying for extra promotion; some have likened this to extortion. In an angry blog post about the changes, Dallas Mavericks owner Mark Cuban cited Tumblr as a platform that brands should consider as an alternative to Facebook’s strong-arm tactics. “David has done a great job of making Tumblr a staple of younger demographics, to the point where for many it’s replacing Facebook as a day-to-day destination,” says Cuban. (The two are acquaintances.)

Another key difference is privacy. Whereas Facebook exploits users’ data to target them with specific ads, Tumblr doesn’t and won’t start, says Webb.

While Tumblr does plan to roll out a limited degree of targeting before long, it’s doubtful it can ever come close to Facebook’s audience, much less its revenue. Catering to artists gave Tumblr an identity and a ready-made market but, in the long run, it’s measured in the hundreds of millions, not billions, of members. The whole world may not need a Tumblr.

“I do sort of wonder how they’re going to transition from where they are today,” says Gartner’s Blau. “Tumblr has to change the perception that they’re only for the creative crowd.”

The key challenge for Tumblr going forward is the same one confronting every social network phenom: How successfully it can accommodate an audience that is rapidly transitioning from laptops and desktops to tablets and smartphones—and learn to make money off it.

Though Tumblr’s minimalist design and intuitive navigation leave it better positioned for the move, it’s still a critical juncture. “This company was born on the web,” says Sabet. “It was not a mobile-first company, as it were.”

While Tumblr still hasn’t quite figured out how some of its most popular features, like a browser bookmarklet that streamlines the sharing of web pages, translate into the app universe, time spent on its mobile app is growing three times as fast as on the web. “The inflection point we’re looking at is the beginning of 2014, where it flips to being majority mobile, and that keeps getting pushed up,” says Karp.

He’s a quick study. Besides, his mentors aren’t afraid to give him a good, hard correction when they think he needs one. “For all my learning how to be a CEO, I’ve made way fewer mistakes,” he says, thanks to “that support system I really trusted who could grab me by the back of the sweater and say, ‘David, you should pay attention.’”

These days, when Karp gets the urge to tinker, he doesn’t dive into code. Instead, he rolls up his sleeves and works on one of his three motorcycles. While that may seem to violate his rule against accumulating stuff, he likes how simple they are compared with cars. With bikes, he says, “it’s all hanging out. Anything you want to get to, you can just pull it out and work on it.” Plus, you can’t have more than one backseat driver.



I can’t imagine that the Valley would have had any benefits besides maybe recruiting engineers. But we’ve managed to build an absolutely extraordinary team of engineers here in New York, many of whom are ‘relos’ from the West Coast. One of the things that’s always bothered me about California is it’s so speed-to-the-tech industry that it has a very hypercompetitive air. A lot of companies are doing extraordinary things. But you can’t escape the sense of paranoia, of “Oh, man, are you trying to recruit my guys? Are you working on something competitive to me? Are you talking to the same investors?” It’s so steeped into this industry that you can’t escape it.

There’s amazing technology going on in New York but, at least for a little while longer, we’re still the underdogs. Our relationship with Foursquare, Etsy, Kickstarter and MongoDB and others out here is incredibly supportive and collaborative. It’s a really tight-knit little community of people who still feel like outsiders, and it’s awesome. We have a tremendous amount of respect and validation from the media and other industries out here, but we’re still new, and we’re still small. As far as our ability to build an audience, New York is truly the most creative city in the world; that is so much of what Tumblr is: A media network, a home for tens of millions of creators.

We’re down the street from Viacom, Paramount, News Corp—all these companies used to dealing with audiences in the hundreds of millions; that’s what they think about. I love hanging out with people who are always thinking about engineering and what the next big thing is. I don’t know that any other city could’ve made Tumblr the way that it is. I am a reflection of the city, too, because I grew up here. I don’t think Foursquare could’ve been built in any other city, or Etsy or Kickstarter. Reinventing economics around creativity works.

—As told to Dan Schawbel


Do I Need a Tumblr?
You’re already on LinkedIn and Twitter, and of course you’re on Facebook. Maybe you even joined the early adopters in trying out Google+. How many hours a day can a person be expected to be social? The good news is, for the average person in most industries, a Tumblr account is more luxury than necessity. It’s not yet a major hub for professional networking, like LinkedIn, or a de facto phone book, like Facebook.

But there are exceptions. For those in a creative field Tumblr is an increasingly important platform. Tumblr’s visual orientation makes it a perfect home for a virtual portfolio from photographers, designers and the like—one that’s easier to maintain than a regular website and more likely to attract attention from potential clients or employers. For writers a viral Tumblr can be the quickest route to a book deal from anxious publishers saving their bets for ideas of proven appeal. More than 50 Tumblr blogs have scored deals this way, from Animals With Casts to Dear Old Love to My Parents Were Awesome.

If you’re an attorney, a hedge fund manager or anesthesiologist—if, in other words, you don’t dream of publishing a novelty book of whimsically captioned cat photos—you will likely find Tumblr of limited professional value. For business owners it’s not clear it will become a tool for customer relations management in the same way as Facebook and Twitter have. Those networks are more geared toward two-way communications, whereas Tumblr is more one-directional, according to Forrester analyst Zach Hofer-Shall.

The exception here is youth brands. Younger internet users over-index on Tumblr, with the heaviest concentration falling between ages 18 and 24, according to ComScore. If your customer base falls into that demographic, Tumblr is increasingly where they are, and where you may need to be as well.

(This story appears in the 08 March, 2013 issue of Forbes India. To visit our Archives, click here.)