The Economics of Tumblr

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Student
Professor
Economics 1
December 2015
The Economics of Tumblr
What is the significance of a social media website or platform? To share content and
connect with friends. Is there any economic value in that? Marketing. Is there such a platform
that can reach beyond that and stimulate the economy on another level? Tumblr. Tumblr is a
microblogging, social networking site that serves an abounding array of creative functions.
Inherently, as it’s original purpose would have it, Tumblr is a microblog. Users can upload, share
and reshare content with other users as well as create a personal space (profile) where they can
express themselves through music, photos, videos or text posts. Tumblr is also a social
networking website. It works in congruence with many other social sites to circulate content.
What has, in recent years, become a popular idea is purposing Tumblr to satisfy the need for
personal or business websites. Tumblr houses many tools that make building a small or even a
thick website relatively simple. Included in customizing one’s personal profile are the resources
to scale up a simple blog into a full-on ecommerce money pot.
Tumblr is such an innovative tool, not only does it stimulate the economy by birthing
young entrepreneurs, it also generates capital directly and indirectly, provides labor and induces
education. These factor are essential for paving the economic pathways of progression. Being a
multi-purpose social website, Tumblr’s user-base is unique from other social media websites like
Facebook and Instagram. One of Tumblr’s many key features is that it allows the user to modify
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the layout, theme or look of their profile/blog by manipulating the code that structures its design.
Maintaining its uniqueness, Tumblr outshines many other social media websites including,
Instagram, Twitter, Facebook, Youtube, Pinterest, LinkedIn and Google+. In the fourth quarter
of 2014, Tumblr showed a 45% growth in members and a 120% growth in active users. (​Patricia
Garner, 2015, marketrealist.com​) As of January 2015, there were 217 million blogs and 99
billion posts. (​Craig Smith, 2015, expandedramblings.com​) The post count exceeds that of
Instagram’s December 2014 post count of only 30 billion. (​Sarah Frier, 2014, bloomberg.com)​
Tumblr is grounded in the ecommerce world we know today, however that is not how it
began nor was that it’s intended purpose. A little history about Tumblr and it’s creator reveals
that Tumblr was founded February of 2007 by CEO & Founder, David Karp (​Tumblr, 2015,
“About Us”​)​ as a short-form blogging platform or microblog (​Doree Shafrir, 2008,
observer.com​). A microblog differs from a traditional blog in that its content is typically smaller
in both actual and aggregated file size. Microblogs allow users to exchange small elements of
content such as short sentences, individual images, or video links (Andreas M. Kaplan​, 2011,
pdf​). ​Early on the creator of Tumblr, David Karp had an understanding of computers. He began
interning at age 14 for animation producer ​Fred Seibert​, founder of ​Frederator Studios​ (​Doree
Shafrir, 2008, observer.com)​ . ​When entrepreneur John Maloney sought technical help with
UrbanBaby​, an online parenting forum, a ​Frederator​ employee recommended Karp for the job.
Karp completed the project, which had to be done in a couple of days, within four hours.
Maloney made him ​UrbanBaby​'s head of product and gave him a small amount of ​equity​ (​Rob
Walker, 2012, ​nytime​s.com)​ .​ ​At age 17, while still working for ​UrbanBaby​, Karp moved alone to
Tokyo for five months.
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Karp left ​UrbanBaby​ after it was sold to CNET in 2006 ​(​Rob​ Walker, 2012,
nytimes​ .com​).​ Using money from the sale of his shares, Karp started his own software
consultancy company, Davidville, envisioning a mix of client work and his own products (​Jeff
Bercovici, 2013, forbes.com)​ . Marco Arment joined the company as an engineer after replying to
Karp's Craigslist ad ​(​Rob​ Walker, 2012, n​ ytimes​ .com​) and w​ithin two weeks of Tumblr’s launch
the service had gained 75,000 users (​Matthew Ingram, 2010, gigaom.com​).
“I realized that I got to spend that entire day working on this product that I absolutely
loved. ... And it was this incredible, liberating, unbelievably inspiring feeling.” said Karp in
an interview with ​Fast Company​ about his first day of work dedicated solely to Tumblr
(​David Karp, 2011, youtube.com/FastCompany)​ .
On May 20, 2013 it was announced that Yahoo! and Tumblr had reached an agreement
for Yahoo! to acquire Tumblr for ​$1.1 billion​ (minus $20 million in Tumblr liabilities) $990
million and David Karp would remain as CEO.
“Both Tumblr and Yahoo! share a vision to make the Internet the ultimate creative canvas
by focusing on users, design – and building experiences that delight and inspire the world every
day.” ~ Marissa Mayer - CEO of Yahoo!​ (​Marissa Mayer, 2013, tumblr.com​).
There have been countless circumstances of Tumblr stimulating the economies, from its
macro, large scale dealings with Yahoo! to its micro, everyday user. Like many blogging sites,
Tumblr induces users to go out and purchase items that relate to their interests. Most of the time
these externalities come from internet advertisements that lead users to buy from their website.
Also externalities may arise from blog posts that intrigue them and cause avid users to fondly go
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out and buy whatever it is that the post is concentrating on. Much of what is seen on Tumblr is or
becomes a trend. Naturally, young minds are drawn to these trendy ideas and influential photos
and posts that make it seem like their lives could be better if they partake in the joyous
bandwagon ride. So, for instance, a simple photo post about a Starbucks frappuccino can easily
induce one to crave a frappuccino. This raises the probability of this individual buying a
frappuccino at Starbucks. This one individual may not be enough to stimulate the economy, even
on a small scale, because of that one photo however, on a larger scale Tumblr itself indirectly
stimulates the economy through millions of photo posts commoving millions of users to go out
and purchase an additional coffee just to take a selfie with it.
This kind of visual influence is a direct form of advertisement called logical persuasion or
LP. Many businesses use this kind of sales tactic to gain consumers and expand their follower
base. Another form of advertising that many companies use, especially with television
commercial advertising, is NI or nonrational influence. This is when an advertisement has very
little to do with what the company is actually attempting to sell. The most common use of NI
would be in perfume or cologne commercials. Rarely will there be a commercial that describes
the scent of a perfume or cologne. Usually consumers will watch a man or woman engrossed in
some activity that makes them ​look​ attractive or sexy. The consumer will then subconsciously
and sometimes even consciously believe that wearing that scent will make them (more) visually
appealing. This is a very powerful form of advertising because it conveys a message that will
bring in consumers without having to state any facts about the product. That means little to no
liability for false advertising by the company.
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"Watch your brain and watch your wallet," states researcher Ian Cook, a professor of
psychiatry at the Semel Institute for Neuroscience and Human Behavior at UCLA. "These results
suggest that the lower levels of brain activity from ads employing NI (nonrational influence)
images could lead to less behavioral inhibition, which could translate to less restraint when it
comes to buying products depicted in the NI advertisements." ​(​Remy Molina, 2011,
LiveScience.com​). To reiterate, professor Ian Cook advocates the idea that nonrational influence
is more effective, at least in image advertisements, when it comes to viewers actually buying the
product because it lessens the withdrawal consumers feel before spending money which could
mean less hesitation to buy.
In addition to stimulating the economy by turning its users into consumers, Tumblr has
created many jobs for people. This does not only mean the job positions that are directly related
to Tumblr company. Which might include software developer positions dedicated to maintaining
and improving Tumblr’s functionality or even board member positions in charge of making
company decisions. However, Tumblr has given way to many self-employed and freelance
entrepreneurs.
This is happening because Tumblr is being utilized on a more professional level. Many of
its users are not logging on merely for the fun of blogging. Young entrepreneurs and business
individuals alike are accessing Tumblr for its variety of resources. With Tumblr, owning your
own website has become a whole lot easier. With all the tools Tumblr has to offer, not only does
it make it easier for web developers to set up client websites, it also becomes possible for
individuals who are not particularly technologically inclined to set up their own website. This
also leads to education which is a huge factor of economic progression. Ordinary teenagers may
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want to learn the skills they need to modify their profile in a way that fits their personality. They
may even end up liking the kind of mental application it takes to do so and look into a career in
web development.
This is a powerful aspect of Tumblr because ​education is a strategic area of development
when it comes to the economy. As part of the education system, higher education is the
mechanism that can give a society the resources necessary for its correlation with social and
economic developments at a global level. The fact that education is a great factor of economic
growth is not a new concept. It has been proven that investments in education, research and
development and health insurance is undoubtedly more profitable than other inputs. The future of
every nation depends fundamentally on the extent to which its system is able to provide for their
citizens a performance level of training, which would make their industries competitive
worldwide. (​Carmen Nastase, 2010, idea.repec.org)​
If one were to relate Tumblr’s affect on software developers to a possibilities curve they
would find some positive and negative externalities from the perspective of the software
developer. In theory, there would be a positive and negative shift in the curve as well as positive
and negative movements along the curve. Beginning with the negative shift in the curve one will
see that even though the price a developer charges for a website remains the same, the demand
for their website service will decrease if their consumers have access to Tumblr. However, there
is a positive shift in the curve if a developer utilizes Tumblr’s resources, the amount of websites
he or she can produce increases in the same given length of time. Thanks to Tumblr Themes, a
web developer can create a single website or theme only once and distribute it to millions of
users.
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Returning to the possibilities curve, one can identify positive and negative movements
along the curve from the perspective of a web developer. Negatively, as Tumblr’s resources are
provided to the users (or as more and more consumers become aware of Tumblr’s resources),
demand for web developers will decrease. Inversely, as cost of resources for the web developer
decrease on behalf of the resources Tumblr provides, quantity supplied by the developer
increases. It can also be theorized that in an indifference curve, a consumer could be equally
satisfied with two options. With Tumblr providing so many resources it makes it easy for
consumers to set up their own website, or if the resources Tumblr provides make it easier for
developers, it’s likely they will lower the price of a website. A consumer would be content
building their own website for free or paying low price to have it done for them.
Tumblr has no doubt been an influential power in the world of social media and
e-commerce. But is it a monopoly? By definition Tumblr is not a monopoly, it more accurately
falls under the category of Perfect Competition. According to creativebloq.com, Tumblr is the
second best free blogging platform. (​Craig Grannell, 2015, CreativeBloq.com​) This being so,
Tumblr is much more than just a blogging platform. Tumblr is the resource of many businesses
and entrepreneurs. About 60 different brands use Tumblr as a resource for marketing and
consumer interaction. Some of these brands are big name brands spanning from IBM to
Universal Music to New York Times and Vanity Fair. (​Jason Keath, 2011, SocialFresh.com​)
Fashion brands ​are built for Tumblr it seems, covering the site with their wears, sharing their
highly visual cultures like ​Bergdorf​ and ​J Crew​ and even offering up links to sales like ​Ann
Taylor​. ​Large websites​ and blogs use Tumblr as a channel for sharing company news like
Twitter​, company culture like ​Mashable​ or to tease content like ​College Humor​ and ​The
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Huffington Post​. Publishing and broadcast media, businesses built on unending content, are by
far the biggest brand category on the site, from Rolling Stone to NPR to Sesame Street.
Technically speaking, Tumblr falls under Monopolistic Competition because it is really in a field
all of it’s own. It is so unique and diverse that it monopolizes a new field of,
businesses-conducting-business-through-social-media. “Conducting”, as opposed to
“promoting”, being the keyword that separates it from other social media sites that host business
profiles.
Tumblr is very resourceful and entertaining, however, on the frontier of social media, like
any good or service one might eventually get bored or grow tiresome of using Tumblr. This
effect is known as, The Law of Diminishing Marginal Utility. For every incremental util the
amount of pleasure received from a good or service will be less than the previous. In other words
pleasure will increase at a decreasing rate eventually reaching zero. At that point the user will
have reached their maximum Marginal Utility and no longer receive enjoyment. And if the user
should choose to continue using the service or consuming the good their pleasure will go into the
negatives which means they will begin to experience displeasure for every incremental util.
According to Craig Smith on behalf of expandedramblings.com, the average user only visits
Tumblr for about 28 minutes. Now, of course this is an average time length and the range it is
derived from could be quite large, meaning we may have users who spend several hours on
Tumblr while others only spend several minutes.
Tumblr is quite economical in the way it helps to circulate and generate capital. Tumblr
displays advertisements throughout it’s content which are individual to each user, meaning the
content of the advertisement is related to the content of the user’s interest, based on what they
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most frequently search, view, like or reblog. Now, this technology has been around for a while
and did not originate from Tumblr, however, incorporating that technology into Tumblr’s
framework leads to a higher average of clicks on the advertisement. This helps to circulate
capital for these other businesses that use Tumblr to conduct marketing. Moreover, direct cash
flow is generated for Tumblr itself. For every visit to these merchant websites by Tumblr
referrals, Tumblr receives about 70 cents (​Craig Smith, 2015, ExpandedRamblings.com)​ . Now,
scale that up by 199.1 million monthly visitors and it becomes apparent just how lucrative this is
for Tumblr.
In retrospect, there’s no wonder why Yahoo! bought Tumblr. Reviewing history and
determining potential, Marissa Mayer was able to identify with the ambition and promise
displayed by Tumblr. That’s nearly one billion dollars worth of faith that the CEO of Yahoo! had
in Tumblr due to it’s expedient versatility and uniqueness, not to mention its economic stimuli.
Marissa knew that Tumblr had promise that could turn into capital if harvested the right way and
speculating at the success of Yahoo!, being the world's largest start-up (founded in 1995 by Jerry
Yang and David Filo, according to ​yahoo.com)​ , one can assess the value of Tumblr to be quite
high.
Tumblr affects the economy with three of the four Factors of Production- Labor, Capital
and Entrepreneurship. Tumblr provides products for purchase which generates capital. It also
stimulates the consumerism of its users which circulates capital. It directly employs an array of
innovative individuals on a national scale which contributes to labor (​Tumblr, 2015, “Jobs”)​ ​ ​.
Lastly, Tumblr has a huge canvas that provides many creative and business resources for
entrepreneurs, young and old.
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Land
Labor
Capital
Entrepreneurship
Tumblr
Occupies the
land in which it
is located
Tumblr directly
employs 352
individuals
Capital is
circulated and
generated in
different ways
Tumblr’s
resourcefulness
encourages
entrepreneurship
Examples
35 E 21st Street,
Ground Floor
New York City,
10010
Occupation
categories
include,
Community
Management,
Creative,
Engineering,
Marketing,
Internships and
People
Circulation:
-Advertisements
Generation:
- Theme sales
- Merchandise
sales
- Partnership
programs
- Free server
space
- Web design
assistance
- Educational
tools
In partnership with Tumblr's Post It Forward campaign, all profits from their merch store
are donated to The Jed Foundation’s Love is Louder movement, working to make communities
and campuses more inclusive and supportive, and The M.A.D. Girls Inc., inspiring a new
generation of leaders to make a difference in the lives of others each and every day (​Tumblr,
2015, “Merch”)​ .
The economics of Tumblr are virtually endless because of it’s potential for growth.
Reiterating a few points to sum up the effectiveness of Tumblr from an economical standpoint,
the list begins with the Yahoo! ordeal and all the ruckus caused by the big purchase of Tumblr by
CEO Marissa Mayer. Next, is Tumblr’s endless availability and resourcefulness for young
entrepreneurs and business individuals, as well as its educational benefits for both general
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education and web development specifically. Then, there’s Tumblr’s ableness to not only
circulate capital but generate it also. All these factors greatly contribute to its value.
Moreover, Tumblr has magnificent intrinsic value. Statistically speaking, Tumblr’s
resources far surpass that of an average social media platform, yet that does not cause it to teeter
in regards to business versus personal and social use. Even on the side of social media, Tumblr
dares to compete for the top spot against Twitter and Instagram. Simply looking at the
availability of types of content to share for all three, it’s no secret that Tumblr has the availability
of both Twitter and Instagram combined. To break it down, the number of types of content that a
user can share with Tumblr is seven. For Twitter that number is five. Instagram is last with only
two. This mathematically reveals that Tumblr is the best choice. However, remaining objective,
each platform has their own advantages and disadvantages and is unique in their own respects.
On behalf of personal use, the best choice depends on one’s own intents and purposes.
Examples of Tumblr’s economic effects have been illustrated time and time again and
still Tumblr continues to grow and reach new heights in the world of modern technology.
Concluding on the topic of how rad Tumblr is, for both the personal user and business user not to
mention the economy, Tumblr is simply a great pass-time. Scrolling through, what seems like,
endless posts can be entertaining, educational, relaxing and even inspirational.
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Works Cited
Tumblr. "About Us"​. ​Tumblr​. Web. 7 October 2015. ​http://www.tumblr.com/about
Shafrir​, Doree​.​ “Would You Take a Tumblr With This Man?” ​observer.com​. ​15 January 2008.
Web. 7 October ​2015.
http://observer.com/2008/01/would-you-take-a-tumblr-with-this-man/
Kaplan, Andreas M., Haenlein, Michael. ​The early bird catches the news: Nine things you should
know about micro-blogging​. Europe, Avenue de la Re ́ publique: Paris, France. 2011.
PDF.
http://michaelhaenlein.net/Publications/Kaplan,%20Andreas%20-%20The%20early%20bird%20
catches%20the%20...%20news.pdf
Walker, Rob​. ​“Can Tumblr's David Karp Embrace Ads Without Selling Out?”​ ​nytime​s.com​.
12 July 2012. Web. 7 October 2015​.
http://www.nytimes.com/2012/07/15/magazine/can-tumblrs-david-karp-embrace-ads-wit
hout-selling-out.html?_r=4&pagewanted=all
Bercovici, Jeff. ​“Tumblr: David Karp's $800 Million Art Project.”​ ​forbes.com​. 2 ​January 2013.
Web. 7 October 2015​.
http://www.forbes.com/sites/jeffbercovici/2013/01/02/tumblr-david-karps-800-million-art
-project/2/
Karp, David. “​David Karp: When It All Came Together.​ ” ​youtube.com/FastCompany.​
12 December 2011. Web. 7 October 2015
https://www.youtube.com/watch?v=gHU1pSHAisE
Ingram, Matthew. ​“Google VC, Tumblr CEO Among the Top Innovators Under 35.”
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GigaOM​.com​ ​August 25, 2010. ​Web.7 October 2015​.
http://gigaom.com/2010/08/25/google-vc-tumblr-ceo-among-the-top-innovators-under-35
Mayer, Marissa​. “Tumblr. + Yahoo! = !!” ​tumblr.com.​ May 20, 2013. Web.
7 October 2015. ​http://yahoo.tumblr.com/post/50902111638/tumblr-yahoo
Melina, Remy. “How Advertisements Seduce Your Brain.” ​LiveScience.com.​ ​September 23,
2011. Web October 17, 2015.
http://www.livescience.com/16169-advertisements-seduce-brain.html
Grannell, Craig “Top 10 Best Blogging Platforms Available for Free.”​ CreativeBloq.com.​ May
10, 2015. Web. October 17, 2015.
http://www.creativebloq.com/web-design/best-blogging-platforms-121413634
Nastase, Carmen. “Education - An Economic Growth Factor.” ​ideas.repec.org​. February 2,
2010.
Web. October 26, 2015.
https://ideas.repec.org/a/scm/ausvfe/v10y2010i2(12)p53-60.html
Smith, Craig. “By The Numbers: 70+ Amazing Tumblr Statistics & Facts.”
expandedramblings.com. M
​ ay 23, 2015. Web.
October 27, 2015. ​http://expandedramblings.com/index.php/tumblr-user-stats-fact/
O’Flaherty, Roisin. “The Growth of Tumblr and How Yahoo Looks in 2015.”
theinnovationenterprise.com​. November 21, 2014. Web. October 27, 2015.
https://channels.theinnovationenterprise.com/articles/the-growth-of-tumblr-and-how-yah
oo-looks-in-2015
Garner, Patricia. “Yahoo’s Tumblr Outshines Instagram In User Growth.” ​MarketRealist.com.
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March 31, 2015. Web. October 27, 2015.
http://marketrealist.com/analysis/stock-analysis/technology/internet/charts/?featured_post
=331327&featured_chart=331457
Frier, Sarah. “Instagram User Count at 300 Million Passes Twitter.” ​bloomberg.com​. December
10, 2014. Web. October 27, 2015.
http://www.bloomberg.com/news/articles/2014-12-10/instagram-says-itll-delete-spam-ac
counts-forever
Keath, Jason. “60 Brands Using Tumblr.” ​socialfresh.com.​ April 01, 2011. Web. November 17,
2015. ​http://www.socialfresh.com/60-brands-using-tumblr/
Tumblr. "Merch"​. ​Tumblr.​ Web. 2 December 2015.​ ​http://www.tumblrmerch.com
Tumblr. "Jobs"​. ​Tumblr​. Web. 2 December 2015.​ ​http://www.tumblr.com/jobs
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