Quick FAQ on Tumblr, "Value", and the Proposed Crab Day
Motivation: I see a lot of misinformation circulating on the dash re the proposed crab day and I wanted to offer a simplified and judgement free perspective using core principles of finance.
Q: We keep being told that tumblr's been making nothing but a loss for years, and yet, if it is so unprofitable, then why is no one is shutting the website down? Is it really in need of our money if it's already owned by a multi-billion dollar corporation?
This is in fact not as much of a paradox as it appears to be because "value" in corporate finance terms is a function of present and expected future profits (adjusting for the fact that profits you expect to be earn in the near future are worth a lot more than equivalent profits expected to be earned much later in time).
This means that you can have a company or a product that is currently making a loss (i.e. costing a lot more to run than the income it generates) and it might still be worth some (or a lot of) money as long as you expect it to generate enough profits going forward. Uber for example has been making a loss for years and is still valued at billions of dollars because people think it will eventually generate a lot of profit.
Q: What does all of that mean for tumblr, specifically?
Given how unprofitable tumblr has been historically it's actually a pretty good sign that management has a plan to try and make it profitable because it means they haven't thrown in the towel yet!
But if they fail or if they decide that no matter what they do tumblr will remain unprofitable, then they wouldn't have much business incentive to keep running it. This is why participating in crab day or spending some money on tumblr in general is a good idea, if you can afford it and if tumblr is a service you would like to keep enjoying into the future. And if the answer is no to either of those questions, that's ok too--don't let anyone guilt you on this.
Even more questions-and-answers under the cut! My inbox is also open for any (good faith) questions you might have.
Q: But we all use tumblr religiously--isn't that enough?
Not quite. Tumblr's current state means that the existing userbase is not enough to make the site profitable. For that to change, either the existing userbase needs to become more profitable, or tumblr needs to get a lot more new users--or have a combination of both.
Q: Can crab day really solve all this?
Once again, not quite. A one time cash-injection is not equal to sustainable income, which is what tumblr ultimately needs. This means tumblr will still need to court potential new users and that entails some change to the design and/or the perception of the site. (I love tumblr but guys, if we are real for a second, last time I told my coworkers that, they asked me if I also had a myspace account.)
Q: So why participate then?
Because it will still help. While some change is inevitable and necessary, if we the existing users put our money where our mouth is, it would send a strong signal to management that we value the service they offer and that they should take our preferences into account in designing the site's future also. Also some cash, even if it is a one time deal,
Q: I heard people who came up with the idea are transphobic Christian fundies--do you really want to associate with people like that?
I don't. But who the blogs behind this idea, as people, are has no bearing on the merits of the idea itself.
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