Tumblin’ Dice

Tumblin’ Dice
May 23, 2013

David L. Applegate

David Applegate is a Chicago-based trial lawyer and partner at the law firm of Williams Montgomery... (read full bio)

Like a freight train coming closer, that ominous rumbling sound you hear is not another F5 tornado in the works, although it is likely to wipe out just as much wealth in the long run as the tornado that hit Moore, Oklahoma, and environs.  (At last report the confirmed death toll stood at 24, with hundreds of homes, schools, and businesses destroyed throughout a seventeen-mile swath at a likely cost of billions of dollars.)  Instead, we predict, it’s the coming Internet 2.0 bubble, otherwise likely soon to be known as the dotcom crash of 2014.

Those who fail to learn the lessons of history are condemned to repeat them, and Yahoo’s recently-announced purchase of Tumblr for $1.1 billion is the latest sign that nobody studies history any more.  Or economics.  Or business.  Call it another failure of the American educational system, we suppose.

Tumblr, for the uninitiated, is a microblogging platform and “social networking” website that allows users to post content from other sources to a so-called short-form blog.  Somewhat like Twitter or even Facebook, Tumblr lets users follow other users' postings but lends itself to minimal commentary and maximum imagery, accompanied by something akin to Facebook’s “me like this” feature.

That’s all well and good, we suppose, but a considerable portion of the platform’s content is simply recycled imagery from other websites, much of it pornographic or otherwise “not safe for work.”  A typical Tumblr blog will be a bunch of video clips or images with the only comments being that so-and-so re-blogged this from some other website or that so-and-so likes this image, particularly if it involves what the Obama re-election campaign liked to call “lady parts.

What social utility this actually provides escapes us here at Somewhat Reasonable, but as long as the U.S. Supreme Court holds that “nude dancing” (once known as “stripping”) is protected by the First Amendment then so, we suppose, is Tumblr.  But what also escapes us is why Yahoo or anyone else would pay a billion dollars for it.

Although Tumblr claims 109.6 million blogs, 51.1billion posts, and 177 employees, it has no viable revenue model other than advertising and according to Reuters has precious little of that.  Founded in 2007, Tumblr has never turned a profit, makes a small fraction of Yahoo's sales, and analysts project that it won’t contribute significantly to Yahoo’s revenue for years.  Still, the hope that it someday will has made Tumblr founder and CEO David Karp, a home-schooled high school dropout, a multimillionaire with a new fortune that Forbes estimates at roughly $200 million after taxes.

For a twenty-six year old this must be a dream come true, but those of us with longer memories recall the days when Karp was still thirteen and the NASDAQ hit an all-time high of 5100 thanks to the feeding frenzy over websites ending in “.com” that generated lots of hits but never turned a profit.  It quickly fell to just 1100, wiping out lots of wealth and retirement dreams, and thirteen years later the NASDAQ is still less than 70% of its high.

Time will tell if Yahoo and Tumblr will escape a similar fate.

David L. Applegate

David Applegate is a Chicago-based trial lawyer and partner at the law firm of Williams Montgomery... (read full bio)