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How to buy a social network, with Tumblr CEO Matt Mullenweg
Decoder with Nilay Patel
The $3 Million Price for Tumblr
Parallels can be drawn between the backstories of Twitter and Tumblr: they both started around the same time, had young CEOs, faced administration and control changes, and had valuations that didn't align with the understanding of their product. Elon Musk bought Twitter for $44 billion, considering it an overpayment. In contrast, Yahoo purchased Tumblr for $1.1 billion in 2013, leading to subsequent ownership changes before it was bought by Automatic for $3 million in 2019. The price was determined by evaluating the social network's technology and user base, taking into account liabilities, legal cases, and high operating costs. Verizon, who sold Tumblr, wanted to ensure the community was cared for, and the CEO of Automatic plans to steward Tumblr for the next generation. Tumblr still serves a unique role on the internet, especially for its primarily under 25 user base. The purchase of Tumblr was not based on its revenue multiple, as it was bleeding cash and required significant turnaround investment. The price of $3 million was a result of internal budgeting and the focus on the employees and user base. Automatic had budgeted about $100 million for turning the company around. Despite the deal being perceived as too good to be true, there was significant cleanup required after the acquisition.
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