Peter Kafka

Recent Posts by Peter Kafka

Tumblr Raises Another $5 Million From Spark and Union Square. Now It Wants Your Money.

Who wants to bet on a Web company with lots of users but very little revenue? The same people who bet on it before. Spark Capital and Union Square Ventures have poured another $5 million into Tumblr, which lets people quickly and easily set up lightweight blogs.

Three-year-old Tumblr doesn’t charge its 4.5 million users for the service. It doesn’t sell advertising on the page views they generate. And it is only now beginning to generate “meaningful” revenue, says founder David Karp. (That’s Karp, flanked by two employees, engaged in some kind of new-fangled xtreme sport, on the cover of this week’s New York Magazine)

But this hasn’t dissuaded Spark and Union Square, the sole investors in the company’s C round, as well as its B round in 2008.* The company has raised $10.2 million to date.

So now what?

Karp, who turns 24 this summer, says his company has “carved out a real and substantial niche” in the last year, and he brandishes numbers to bolster his case. The service, for instance, is now generating one billion page views a month. Here’s a chart! (Click to enlarge.)

But until recently, Tumblr’s growing popularity hasn’t done much beyond racking up big infrastructure bills. Now Karp says the company is changing this by rolling out a series of paid services.

The Los Angeles Times has a nice summary of new services, and Karp says there are a “dozen more in the pipeline.” But the short version is that these are primarily bells and whistles–like digital “stickers” you buy for your friends at a buck a pop–that passionate Tumblr users may like, but don’t need.

This is a switch from the company’s earlier plan to bundle lots of must-have features into a “Tumblr Plus” subscription service aimed at its most passionate users.

The new strategy is a little more seat-of-the pants, but the bet is that it may be easier to coax money out of people a couple dollars at a time.

Not coincidentally, this is the same model that’s working out very well for social gaming companies like Zynga, which is also funded by Union Square Ventures (and to a lesser degree OMGPOP, which is backed by Spark).

Zynga is reportedly profitable, and many have it pegged for an IPO in the near future. I don’t see that in Tumblr’s cards, but if Karp and crew were interested, I can see them attracting interest from the likes of Google (GOOG) and Yahoo (YHOO) sooner than later.

Maybe sooner in Yahoo’s case, if it can’t snap up another company whose CEO also graces New York Magazine’s cover this week.

*“Inside rounds” like these are supposed to be no-nos in the VC world because existing investors traditionally want to find new money to validate their wagers. For the counterargument, consult Tumblr investor Bijan Sabet’s blog (hosted by Tumblr, of course).


Latest Video

View all videos »

Search »

Nobody was excited about paying top dollar for a movie about WikiLeaks. A film about the origins of Pets.com would have done better.

— Gitesh Pandya of BoxOfficeGuru.com comments on the dreadful opening weekend box office numbers for “The Fifth Estate.”