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Summary:

Tumblr is enjoying explosive traffic growth and jaw-dropping valuations. But so did a similar community site, GeoCities, a decade ago before it quickly imploded. Investor Fred Wilson says this time is different.

Fred Wilson

In the late 1990s, web-hosting site GeoCities burst into the world’s top ten websites and attracted $3.5 billion from Yahoo — then quickly became internet road kill. As investors drool over a new generation of sites like Tumblr that have rocket-like audience growth, does GeoCities provide a cautionary tale?

Fred Wilson is a good person to ask. He’s a prominent venture capitalist who has invested in dozens of tech companies – including Tumblr and, once upon a time, GeoCities too. Speaking at Ad Tech New York on Wednesday, Wilson explained how both companies built massive audiences in a very short period of time by appealing to community and self-expression.

Wilson believes, however, that Tumblr will escape its predecessor’s fate in part because the popular sharing blog is unspoiled by advertising.

“GeoCities slapped ads everywhere. The performance and appearance was ugly,” said Wilson. “At Tumblr, the business model is quite elegant.” (see a GeoCities example at right)

[Update: Wilson also noted that another crucial difference between Tumblr and earlier community services is the story feed; in services like Tumblr or Twitter, the feed makes for a cleaner, more efficient user experience. See his comment below]

The two firms diverging trajectories can partly be explained by capital demands. These days, lower development costs mean Tumblr can serve millions of users but, unlike the days of GeoCities, it can wait years to figure out a money model.

But the Tumblr approach also reflects lessons learned from the Web 1.0 era. Wilson says one of these is that scale must come before monetization: if a company focuses on advertising too soon, chances are that it will build a faulty product that will never scale.

That’s not the only ad insight Wilson picked up from his Geocities days. Like a growing number of execs in the New York tech and media scene, Wilson is a true believer in native advertising.

“If you just slap up some generic ad format, people tune it out and it doesn’t perform,” he argues. “People don’t hate advertising. They hate bad advertising, interruptive ads or poorly targeted ads.”

Wilson thinks sites should follow Twitter’s lead and ensure ad content is the form of an atomic unit that mimics the native content – a tweet on Twitter, a video on YouTube and so on. For the advertiser, the formula is to develop great organic ad content and then pay the platform to promote it. (It should be pointed out that Wilson has stakes in both Twitter and Tumblr; still, the observations seem sound).

Such a strategy, however, poses a challenge for the traditional ad campaign where one piece of content often fits all. The good news, Wilson says, is that ad agencies are adopting by building ads for specific venues and then engaging and managing that content.

(Tumblr CEO about his “design first” philosophy at GigaOM’s RoadMap conference; see video and write up here).

  1. that is one of the reasons but not the only one i mentioned on stage. more important than the native advertising model is the feed. as i said at ad:tech today, the introduction of the feed into services like tumblr, twitter, and facebook has made the consumption experience much cleaner and efficient than what existed on Geocities and MySpace. it’s both of those things in concert, not one or the other. that’s what i said on stage today

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    1. thanks for the comment Fred.. I was trying to present a streamlined account but didn’t mean to oversimplify.. I’ve added a line to take account of your point.

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  2. It doesn’t matter if people hate ads or not, what matters is if they are noticed, and people are getting so used to tuning out ads. I might remember one ad for every 1000 web pages I view, and I don’t think I’m that different from most people. It’s automatic, I don’t have to try to ignore ads, I just don’t see them.

    And then factor in the point that the inventory of places to advertise will only grow. There are no barriers to entry in the web advertising world. The cost of ads may drop faster than the price of bandwidth, servers, and energy, which means there won’t be much profit.

    If there’s no business model now, and people are counting on one to appear in a few to several years, it’s not much different than the 90’s.

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  3. Just look at some numbers how can they sustain without a revenue model!

    http://statspotting.com/2012/02/tumblr-statistics-15-billion-pageviews-a-month-1000-servers/

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    1. I don’t have anything at stake here, but the strategy of native advertising and promoted posts is reportedly working extremely well for Twitter (and for media companies like BuzzFeed). It holds to reason it would work for Tumblr too — provided brands are willing to devote the time and energy to create the content (rather than just making another big buy on Monday Night Football)

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  4. tumblr is not the geocities its blogspot

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  5. I’m a firm believer in the native advertising / sponsored content model, but this article is missing one key point: make ads engaging or entertaining. Right next to this comment are 3 ads that are in no way targeted towards me, nor are even remotely interesting or creative. That is the problem and not the delivery mechanisms and distribution networks.

    I also prefer the term sponsored content to native advertising because it reminds us that it doesn’t have to be an “ad” but rather a piece of content, that should be entertaining/informative, and happens to be sponsored.

    http://diseruption.com/2011/12/06/beyond-the-click-content-is-marketing/

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    1. Thanks for the comment, Ranjan Roy. Some GigaOM writers were just discussing today whether “native advertising” is better or worse than “sponsored content” or “sponsored stories.” While the latter is probably a more useful term, it appears the ad community is going with “native advertising” because it sounds more benign to readers (who are very sensitive to traditional lines between ads and editorial).

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