No, I Don’t Think It Makes Sense for Twitter to Buy Tumblr

Cross-posted on Kanvz

Nate Swanner has an interesting article in The Next Web in which he argues that Tumblr would be a perfect acquisition target for Twitter. Personally, I don’t think there is a strong case for this. Tumblr and Twitter are excellent platforms. A Tumblr acquisition could certainly add some value to Twitter, but at the price Twitter might be forced to pay for Tumblr (say, a few hundred $M) I’m not convinced that the value-add would be meaningful enough or even generate a positive return on investment. There are a few reasons why I believe this to be the case.

Let’s start with the case Swanner makes:

Aimed at millennials, Tumblr is a blogging platform that is more about imagery than static text. It’s also made some notable improvements of late, including Live Photos support and a GIF maker.
And that’s why it’s perfect for Twitter.
[…]
..It’s very plausible that a 140-character tweet preview could lead to an expanded Tumblr post, which would even take us beyond 10,000 characters.
Buying Tumblr would also encourage more users into the Twittersphere. In a way, it would be Twitter’s answer to Medium, and help those that don’t quite ‘get’ Twitter find use cases currently unavailable.
It could also serve Twitter’s other properties well. Embedded Vines would probably do well on Tumblr, as would Periscope feeds. Tumblr would also be complimentary for Twitter Moments, especially when it comes to pop culture, and is low-hanging fruit for advertisements.

Let’s use a few different dimensions to examine Swanner’s idea.

a) Valuation: If Twitter were to purchase Tumblr, they’d have to likely pay several hundred million $ for Tumblr, even keeping in mind that Yahoo has written down Tumblr’s valuation (goodwill) recently. That would not be cheap for Twitter.

b) Monthly Active Users (MAUs): Given Twitter’s top challenge today is poor growth in MAUs, how many new MAUs is Twitter likely to get via Tumblr for that hefty valuation? Yahoo has been reluctant to share reliable MAUs for Tumblr, but a recent comment by a Yahoo SVP indicates Tumblr has “tens of millions” of MAUs. Further, Tumblr skews younger but has strong demographic overlap with Twitter. So, it is quite likely that many Tumblr users are already on Twitter. I would therefore be surprised if Tumblr, at the time of an acquisition, would add much more than, say, 10–20M new MAUs to Twitter. That would represent well below 10% of Twitter’s current MAUs — i.e., a rather modest number.

c) Potential for MAU growth: Someone might argue that, joined together, Twitter and Tumblr could achieve substantial MAU growth for the combined entity. This is theoretically possible but practically speaking unlikely. Twitter’s current positioning is around news and real-time information. Tumblr’s positioning is around blogging - but in the context of sharing interesting and funny images, videos, etc. Twitter already supports multimedia and GIFs and is actively working to allow its users to write (blog) posts longer than 140 characters. So, it wouldn’t make sense to pay Yahoo several hundred million $ for capabilities that Twitter can build in-house for far less. When it comes to sharing cool images, videos, GIFs and so on, Tumblr already has stiff competition — from Instagram, SnapChat, Giphy, Messenger, WhatsApp and many other apps. In the face of that competition, Tumblr has not been growing anywhere near as fast as most of those platforms. So, it’s difficult to envision how a Twitter-Tumblr combination would increase MAU growth rapidly.

d) Potential for faster revenue growth: It is hard to argue that Tumblr provides a path for Twitter to grow revenues more rapidly. Tumblr has been struggling to hit $100M in annual revenues for the past couple of years — and Yahoo therefore has never disclosed Tumblr’s actual revenues. At best, Tumblr would only add marginally to Twitter’s revenue base.

e) Market positioning: As stated above, Twitter’s market positioning today is quite different from Tumblr’s. What would be the market positioning of the combined entity? Twitter is already struggling to explain to the mass market what Twitter is and what it wants to be years from now. Acquiring Tumblr — which is positioned quite differently from Twitter today — increases Twitter’s challenge of defining itself to the world.

f) Solving Twitter’s core challenges: Previously, I wrote about why some of the publicized objectives of Twitter are unlikely to “fix” Twitter. I encapsulated the challenges Twitter faces as follows:

Twitter is at an inflection point where, in my opinion, they have to address 3 major challenges:
1. Expand their creator base beyond their current footprint
2. Attract a lot more logged-in consumers
3. Stem the long-term erosion of their creator and consumer base to Facebook without becoming a “me-too” platform

The question of whether a Tumblr acquisition makes sense for Twitter should be weighed against each of the above challenges.

On #1: As mentioned earlier, Tumblr is unlikely to expand Twitter’s creator base by a large amount.

On #2: Tumblr is not known for breaking news/real-time information and conveying such information in a unique way compared to Twitter. Competitors like Facebook are already dominating Twitter, even in news and information consumption. There are also plenty of other apps for images, video, GIFs and so on. So, it’s difficult to see Tumblr making Twitter a much larger content consumption destination. it’s also worth keeping in mind that content consumers — in social platforms — tend to be more engaged when they can comment on content. Twitter’s “tweets-as-replies” approach, as I’ve discussed before, can be confusing to mass market audiences — and Tumblr doesn’t bring any new commenting technology to Twitter to solve this problem.

On #3: In some ways, Twitter is facing an existential threat from Facebook. What they’re doing right now might at best bring them closer to what Facebook offers — and that’s not going to be good enough for Twitter. If Twitter cannot attract a billion signed-in users, at least they should continue to provide unique and compelling capabilities for creators and consumers that would be hard for Facebook (or other large competitors) to match. I just don’t see how Tumblr is going to help Twitter meaningfully on that front.

In summary, I respectfully disagree with Nate Swanner. I don’t think a Tumblr acquisition makes too much sense for Twitter to pursue. I believe there are some key areas that Twitter can innovate in, less expensively, which might allow them to compete more effectively with Facebook. I’ll discuss those at a later point in time.