11 ms·

This celebration of "businesses" who make no money (and show no interest in making money) has to stop. It's one thing if we call them what they are - neat litt

by timjahn 15y ago

This celebration of "businesses" who make no money (and show no interest in making money) has to stop. It's one thing if we call them what they are - neat little side projects. But if we're to believe these companies are businesses that make money and put food on the table, that's hogwash.

deleted 15y ago
[deleted]
ma2rten 15y ago
I beg to differ, the ultimate goal of a business should be to create value. Money should only serve as a yardstick for the value created.
subpixel 15y ago
The really irresponsible thing here is that the article doesn't make an explicit point of Tumblr's lack of revenue or revenue model and ask 'wtf is the plan?'. Reminds me of ra-ra coverage celebrating the 'success' of Digg.
- timjahn 15y ago
  Exactly.
bonzoesc 15y ago
I'm kind of in favor of rebranding "startups" that have no business like Twitter or Tumblr as "charities." "For only 30¢ per day you can make a difference in the life of a young adult who wants to reblog naked girls from other Tumblr sites and tweet about animated GIFs."
rudiger 15y ago
Tumblr gets over 10 billion page views a month. It's something bigger than a "neat little side project." The criticism of Tumblr (and Twitter) that they're not "real" businesses or that they're not interested in making money ignores how young these companies are and how early in their lifetimes we're judging them.
- gks 15y ago
  The point is they should've been making money a lot sooner. I'd agree they aren't real businesses because they AREN'T MAKING MONEY. That is sort of the definition of a company no? How young they are? That is a criteria for whether a company should be making money or not? The point of any company really is to make money. These "startups" aren't filing as non-profits right? So they should be making money. If after the first couple months of being open you aren't figuring out how to make money you've done something wrong. EDIT: Let me edit this to make it more clear. They should be self-sustaining. They should be able to pay their bills and employees. Whether they make a profit or not isn't the point. But if a company doesn't get funding and that alone causes them to disappear then they've done something wrong.
  - ig1 15y ago
    Not really. Do you think Ford aren't a company, how about Vodafone, BP and UBS ? - these are all companies which have filed annual losses. Yes the purpose of a company is to make money, but not making money in the short term doesn't mean it's not a company. Not all business are inherently self-sustaining in a short time period, many small business (including shop, restaurants, etc) will operate at a loss in their first year. There's plenty of business that take a while to return a profit, that doesn't make them any less businesses just because they're not the type of business that you'd like to run.
    - timjahn 15y ago
      My larger point is these "companies" appear to have no interest in making money. I'm not suggesting you need to be making money every single minute of your company's existence. Instead, I'm suggesting that you should be interested in (and actively working toward) making money.
      - ig1 15y ago
        The fact they're raising investment is a pretty clear statement that they want to make money. Just because they're not choosing to focus on revenue at this stage of product development doesn't really mean they have no interest in making money. Any company needs to decide where their focus should be, Tumblr may well have done the analysis and decided that rather than take their focus away from their core product and focus on monetization (which may only generate a few hundred million in revenue at this stage) it's better for them to focus on their core product now in order to have a chance of monetizing at the billion dollar range in the future. It's a perfectly rational economic decision.
cletus 15y ago
There are, I agree, some egregious cases. Three examples spring to mind. Color raised $41 million on basically nothing. Many, including myself, criticized the concept. All the defenders had was "we don't really know where this is going". The second example--and this is going to be somewhat controversial--is Twitter. Twitter is now at the point where they need to start figuring out the monetization problem. They've established a site where third-party access is a huge part of the user base. The 140 character message format limits in-stream options (and people have thus far railed against inserting ads into tweet streams). Plus (IMHO) Twitter has become a tool for following celebrities. The TMZ of the Internet if you will. Not that there isn't a market for that but it's not as large as the vision of people in general sharing status updates. I'm far from convinced that Twitter will make that transition to mainstream. The third is Groupon. Many, including myself, have been critical of Groupon's shady practices for awhile. What's happened in the last few months is that this Ponzi scheme has started to unravel. Better now than after the IPO. And not before taking over $1 billion in VC, most of that coming from DST who seems to be willing to throw money around with impunity. Better them than American consumers who Congress might feel some need to jump to the defense of. But, in general, this isn't a celebration of businesses that make no money. It's allowing businesses to scale and grow quickly rather. Many Internet businesses couldn't be profitable if small. Or organic growth would simply take too long and a VC-backed rival could well supplant them. In Tumblr's case, growing from 2B views/month to 13B/month is nothing less than impressive. The "blog" format has (IMHO) lots of monetization potential. In the short to medium term Tumblr seems destined for more growth or a big exit on buyout.
- jasonfried 15y ago
  "Many Internet businesses couldn't be profitable if small." I'd say just the opposite: I think most internet businesses could be profitable if they were smaller.
  - T-hawk 15y ago
    It goes both ways. The distinction might be efficiency of profit per capital and time invested. Something like patio11's bingo card maker, which makes money out of almost nowhere compared to its cost, works well only if small. But that type of set-it-and-forget-it business doesn't scale to the likes of Groupon or Dropbox or Spotify or Airbnb.
ig1 15y ago
Tumblr is one of the few companies who can potentially dethrone Facebook (if you have younger family members ask them if they use Facebook or Tumblr more), a company which has a multi-billion dollar revenue stream while still in the early stages of monetization. It's easy to forget that Google didn't have a revenue stream for a long time. If you're solving a problem for users then there's going to be a way to monetize it, the bigger question is if the revenue per user is higher than the cost per user. Given Tumblr's costs per user is relatively low that shouldn't be a problem. If they chose to switch on ads tomorrow even using remaindered ad suppliers they would have $100m+ in annual revenues.
- silverbax88 15y ago
  Google didn't make money, but Google almost went under before they managed to leech off of an idea from Overture and start making money with PPC. It is a fallacy to say that because just because Google did not make money right away that it is acceptable for any business to flounder along for years with no identifiable monetization in sight. Amazon didn't make money right away either, but just because Google and Amazon started making money doesn't mean that every internet startup will become Google or Amazon. Twitter should have been making money for some time now; it's absolutely ludicrous that they aren't. If Tumblr is really getting 10 billion page views, what are they waiting for? I don't understand where the money comes from to throw into these projects that have no track record of profitability. To put it another way, would investors pour $85 million of new investment into Burger King tomorrow? How about Sears? These are companies with massive revenue and decades of profit and investors would be hard pressed to just hand them millions - when companies like Burger King get money, it's with terms, i.e., loans to build new locations. Juxtaposed against handing Tumblr $85 million just so they can afford to keep their servers going is incredibly silly.
  - deleted 15y ago
    [deleted]
  - ig1 15y ago
    I don't think you really understand what VC funds do, VC funds invest in high-risk high-reward opportunities. Let's assume that Tumblr is worth $400m today, given their current growth rate there's a reasonable chance they might be worth a few billion within the next couple of years. The chances of Sears or Burger King increasing their value by 3-5x in the next couple of years are negligible. VCs invest in companies which have the potential to grow rapidly and return 10x+ on their investment (less with later stage companies), these are high risk investments, but the investment is done as part of a portfolio on the assumption that that the return from the successful companies will far outweigh the return from the companies that fail. Good VCs have over the last few decades had better returns than index trackers and the like using this approach, hence they attract investors who are happy with this higher risk investment approach.
wavephorm 15y ago
Investment pyramid schemes do make money for early investors.
achompas 15y ago
Tumblr is a really interesting case, since their page views grow exponentially (since everything gets reblogged on Tumblr). Consider: a post gets reblogged by a users and seen by their b followers, who reblog to their c followers etc. Thus, the average post has: a + b^a + c^b + ... total views. Set a += 1. Then b += b, c += c * b ... How many new page views will Tumblr get? Hundreds? Thousands? What happens once Tumblr decides to advertise, even with AdSense? What if they use these $85m to build a data team and target ads? Because that's what they're doing with part of the money. [0] I'm not a fan of funding companies solely on potential, but Tumblr could be big. [0] http://tumblr.theresumator.com/apply/Ro2TZk/Data-Engineering-Lead.html?source=Tumblr+Jobs+Page http://tumblr.theresumator.com/apply/Ro2TZk/Data-Engineering...
gyardley 15y ago
Tell that to the founders of YouTube. It's extremely risky but perfectly acceptable to grow an unprofitable business to the point where it becomes an attractive acquisition target for a company that can monetize it effectively. It's also extremely risky but perfectly acceptable to sacrifice profitability in favor of extremely rapid expansion in a new market, and then achieve profitability later. Venture capitalists naturally like businesses (and yes, they are businesses) with strategies like this because they require lots of capital. Just because you and I have a different appetite for risk and wouldn't build a business using these strategies doesn't mean the businesses themselves are 'neat little side projects'.

by timjahn 15y ago

deleted 15y ago

[deleted]

ma2rten 15y ago

I beg to differ, the ultimate goal of a business should be to create value. Money should only serve as a yardstick for the value created.

subpixel 15y ago

The really irresponsible thing here is that the article doesn't make an explicit point of Tumblr's lack of revenue or revenue model and ask 'wtf is the plan?'. Reminds me of ra-ra coverage celebrating the 'success' of Digg.

timjahn 15y ago
Exactly.

bonzoesc 15y ago

I'm kind of in favor of rebranding "startups" that have no business like Twitter or Tumblr as "charities." "For only 30¢ per day you can make a difference in the life of a young adult who wants to reblog naked girls from other Tumblr sites and tweet about animated GIFs."

rudiger 15y ago

Tumblr gets over 10 billion page views a month. It's something bigger than a "neat little side project." The criticism of Tumblr (and Twitter) that they're not "real" businesses or that they're not interested in making money ignores how young these companies are and how early in their lifetimes we're judging them.

gks 15y ago
The point is they should've been making money a lot sooner. I'd agree they aren't real businesses because they AREN'T MAKING MONEY. That is sort of the definition of a company no? How young they are? That is a criteria for whether a company should be making money or not? The point of any company really is to make money. These "startups" aren't filing as non-profits right? So they should be making money. If after the first couple months of being open you aren't figuring out how to make money you've done something wrong. EDIT: Let me edit this to make it more clear. They should be self-sustaining. They should be able to pay their bills and employees. Whether they make a profit or not isn't the point. But if a company doesn't get funding and that alone causes them to disappear then they've done something wrong.
- ig1 15y ago
  Not really. Do you think Ford aren't a company, how about Vodafone, BP and UBS ? - these are all companies which have filed annual losses. Yes the purpose of a company is to make money, but not making money in the short term doesn't mean it's not a company. Not all business are inherently self-sustaining in a short time period, many small business (including shop, restaurants, etc) will operate at a loss in their first year. There's plenty of business that take a while to return a profit, that doesn't make them any less businesses just because they're not the type of business that you'd like to run.
  - timjahn 15y ago
    My larger point is these "companies" appear to have no interest in making money. I'm not suggesting you need to be making money every single minute of your company's existence. Instead, I'm suggesting that you should be interested in (and actively working toward) making money.
    - ig1 15y ago
      The fact they're raising investment is a pretty clear statement that they want to make money. Just because they're not choosing to focus on revenue at this stage of product development doesn't really mean they have no interest in making money. Any company needs to decide where their focus should be, Tumblr may well have done the analysis and decided that rather than take their focus away from their core product and focus on monetization (which may only generate a few hundred million in revenue at this stage) it's better for them to focus on their core product now in order to have a chance of monetizing at the billion dollar range in the future. It's a perfectly rational economic decision.

cletus 15y ago

There are, I agree, some egregious cases. Three examples spring to mind. Color raised $41 million on basically nothing. Many, including myself, criticized the concept. All the defenders had was "we don't really know where this is going". The second example--and this is going to be somewhat controversial--is Twitter. Twitter is now at the point where they need to start figuring out the monetization problem. They've established a site where third-party access is a huge part of the user base. The 140 character message format limits in-stream options (and people have thus far railed against inserting ads into tweet streams). Plus (IMHO) Twitter has become a tool for following celebrities. The TMZ of the Internet if you will. Not that there isn't a market for that but it's not as large as the vision of people in general sharing status updates. I'm far from convinced that Twitter will make that transition to mainstream. The third is Groupon. Many, including myself, have been critical of Groupon's shady practices for awhile. What's happened in the last few months is that this Ponzi scheme has started to unravel. Better now than after the IPO. And not before taking over $1 billion in VC, most of that coming from DST who seems to be willing to throw money around with impunity. Better them than American consumers who Congress might feel some need to jump to the defense of. But, in general, this isn't a celebration of businesses that make no money. It's allowing businesses to scale and grow quickly rather. Many Internet businesses couldn't be profitable if small. Or organic growth would simply take too long and a VC-backed rival could well supplant them. In Tumblr's case, growing from 2B views/month to 13B/month is nothing less than impressive. The "blog" format has (IMHO) lots of monetization potential. In the short to medium term Tumblr seems destined for more growth or a big exit on buyout.

jasonfried 15y ago
"Many Internet businesses couldn't be profitable if small." I'd say just the opposite: I think most internet businesses could be profitable if they were smaller.
- T-hawk 15y ago
  It goes both ways. The distinction might be efficiency of profit per capital and time invested. Something like patio11's bingo card maker, which makes money out of almost nowhere compared to its cost, works well only if small. But that type of set-it-and-forget-it business doesn't scale to the likes of Groupon or Dropbox or Spotify or Airbnb.

ig1 15y ago

Tumblr is one of the few companies who can potentially dethrone Facebook (if you have younger family members ask them if they use Facebook or Tumblr more), a company which has a multi-billion dollar revenue stream while still in the early stages of monetization. It's easy to forget that Google didn't have a revenue stream for a long time. If you're solving a problem for users then there's going to be a way to monetize it, the bigger question is if the revenue per user is higher than the cost per user. Given Tumblr's costs per user is relatively low that shouldn't be a problem. If they chose to switch on ads tomorrow even using remaindered ad suppliers they would have $100m+ in annual revenues.

silverbax88 15y ago
Google didn't make money, but Google almost went under before they managed to leech off of an idea from Overture and start making money with PPC. It is a fallacy to say that because just because Google did not make money right away that it is acceptable for any business to flounder along for years with no identifiable monetization in sight. Amazon didn't make money right away either, but just because Google and Amazon started making money doesn't mean that every internet startup will become Google or Amazon. Twitter should have been making money for some time now; it's absolutely ludicrous that they aren't. If Tumblr is really getting 10 billion page views, what are they waiting for? I don't understand where the money comes from to throw into these projects that have no track record of profitability. To put it another way, would investors pour $85 million of new investment into Burger King tomorrow? How about Sears? These are companies with massive revenue and decades of profit and investors would be hard pressed to just hand them millions - when companies like Burger King get money, it's with terms, i.e., loans to build new locations. Juxtaposed against handing Tumblr $85 million just so they can afford to keep their servers going is incredibly silly.
- deleted 15y ago
  [deleted]
- ig1 15y ago
  I don't think you really understand what VC funds do, VC funds invest in high-risk high-reward opportunities. Let's assume that Tumblr is worth $400m today, given their current growth rate there's a reasonable chance they might be worth a few billion within the next couple of years. The chances of Sears or Burger King increasing their value by 3-5x in the next couple of years are negligible. VCs invest in companies which have the potential to grow rapidly and return 10x+ on their investment (less with later stage companies), these are high risk investments, but the investment is done as part of a portfolio on the assumption that that the return from the successful companies will far outweigh the return from the companies that fail. Good VCs have over the last few decades had better returns than index trackers and the like using this approach, hence they attract investors who are happy with this higher risk investment approach.

wavephorm 15y ago

Investment pyramid schemes do make money for early investors.

achompas 15y ago

Tumblr is a really interesting case, since their page views grow exponentially (since everything gets reblogged on Tumblr). Consider: a post gets reblogged by a users and seen by their b followers, who reblog to their c followers etc. Thus, the average post has: a + b^a + c^b + ... total views. Set a += 1. Then b += b, c += c * b ... How many new page views will Tumblr get? Hundreds? Thousands? What happens once Tumblr decides to advertise, even with AdSense? What if they use these $85m to build a data team and target ads? Because that's what they're doing with part of the money. [0] I'm not a fan of funding companies solely on potential, but Tumblr could be big. [0] http://tumblr.theresumator.com/apply/Ro2TZk/Data-Engineering-Lead.html?source=Tumblr+Jobs+Page http://tumblr.theresumator.com/apply/Ro2TZk/Data-Engineering...

gyardley 15y ago

Tell that to the founders of YouTube. It's extremely risky but perfectly acceptable to grow an unprofitable business to the point where it becomes an attractive acquisition target for a company that can monetize it effectively. It's also extremely risky but perfectly acceptable to sacrifice profitability in favor of extremely rapid expansion in a new market, and then achieve profitability later. Venture capitalists naturally like businesses (and yes, they are businesses) with strategies like this because they require lots of capital. Just because you and I have a different appetite for risk and wouldn't build a business using these strategies doesn't mean the businesses themselves are 'neat little side projects'.