Earlier this year, microblogging service Tumblr was the toast of Fashion Week. The company’s fashion director, Rich Tong, negotiated access for influential Tumblr users to cover swanky events. Bloggers got access to A-list fashion shows and in return big brands got access to an online community of fashion enthusiasts that were active on one of the edgier platforms to emerge in the social media landscape in the last few years. And the industry took notice. Now fashion luminaries are on the platform, too. Stefano Gabbana has a Tumblr. So does Terry Richardson.
But Tumblr’s courting of the industry played out a little differently this season against the backdrop of the Fall shows. It began with a proposal Mr. Tong circulated to fashion brands and agencies for the Spring 2012 shows. Tumblr made a similar offer to deliver influential bloggers to big brands, but this time, the company wanted to be paid for the service. The proposal asked for $100,000 to have four of Tumblr’s 20 “select bloggers” produce 15 posts for the client brand’s Tumblr during the week, with the “exact nature of the content to be agreed upon prior to the start of the week.” For $150,000, brands could get ad placement on the official NY Fashion week Tumblr. For $350,000 they could get ad placement on the Tumblr tagged “fashion” page. And for $10,000 big fashion brands could spend a little quality time with the bloggers at a private event. Product placement was also offered “at cost”. “This is an opportunity for your brand to put your product in the hands of the right bloggers,” said the proposal.
For many brands, it seemed like an attractive offer. Tumblr is a popular platform with over 28 million blogs. The company, which was founded by 25-year-old David Karp, has 49 employees and a valuation estimated at $800 million. It’s reportedly close to raising a $75 to $100 million round for additional infrastructure, prompting many jokes about bubbles and the valuation-to-revenue gap. Tumblr CEO David Karp has said he is adamantly opposed to putting ads on the site, and the company’s revenue streams–custom themes that cost users a one-time fee of $9 to $49 and a $5 directory–haven’t kept up with the site’s user growth.
The user growth is in many ways a function of the site’s minimalist and intuitive design, which lends itself to easy reading and sharing of content. “I think there’s magic that happens inside the Tumblr dashboard,” said Jared Hecht, who worked in business development at Tumblr before leaving to co-found the startup GroupMe, recently acquired by Microsoft. “People sit there literally all day long, refreshing their dashboard, consuming more content. I think it’s the greatest, most monetizable component of Tumblr. They have a unique opportunity to monetize with features that their userbase actually will like and interact with. I think subtle and simple value-add features in the dashboard will be monetizable, along wth community verticals.”
But if the platform is attractive to users and potentially monetizable, it hasn’t done a very good job of the latter. Reaction to Mr. Tong’s proposal was mixed. “They clearly don’t understand the first thing about ad buying,” said an agency rep with more than a decade in digital sales who received the proposal. “They didn’t explain how these ads would be served or offer us any way to track them, even through a third party. How am I supposed to present that to a client?”
If Tumblr is having trouble parsing how the industry works, it’s not the only company with that problem. Last week, the New York-based ToVieFor, a members-only auction site for women’s luxury goods, closed up shop after about a year of building the business followed by a spring at TechStars, the high-powered incubation program that connects entrepreneurs with mentors and money. The site was shuttered, the company’s Twitter account was down, its Tumblr was quiet, and co-founder Melanie Moore changed her LinkedIn profile to the past tense. “On the surface, we shut down because we ran out of money,” Ms. Moore said. “However, the root cause of this was a flawed business model. We were attempting to compete solely on price in a world where brands not only do not compete on price, they have essentially formed an oligopoly and set prices (vs. take prices). As a result, it was incredibly difficult to convince brands to allow us to change up their pricing structure. And in retail, having those brand partnerships is critical to survival.”
At the beginning, ToVieFor had incredible momentum. The startup won the $75,000 grand prize at NYU’s Stern School business plan competition, debuted at TechCrunch Disrupt and went on to make the cut into the first TechStars NY class that ended April 15. When they applied for TechStars, ToVieFor had revenue, 5,000 users and a four-person team with 15 years of collective industry experience; they were also filling out their board with fashion insiders, including an editor at Gotham magazine and a finance executive with Burberry.com, according to the New York Times, which reported that “the company’s live presentation, said one judge at Stern’s finals this year, Paul Sciabica, executive director of New York Angels, was ‘investment-bank quality.’”
During TechStars, ToVieFor tried to adapt to be more like a typical, full-price retailer. “This satisfied the brands, and we began to establish partnerships with designers in the luxury category,” Ms. Moore wrote in an email. “But as a result of this change, we lost our competitive edge in the marketplace. We were then going head-to-head with retailers like Net-a-Porter and Shopbop, with no real competitive advantage over these businesses.”
And those businesses may be the only ones that are fitting somewhat comfortably into the clunky intersection between tech and fashion. Kevin Ryan’s Gilt Groupe, an Alley-based luxury retail site, has grown from a small members-only shopping site to a retail behemoth that’s hoping for a 2012 IPO. It generated $270 million in revenue in 2009 and claimed to have done over $400 million last year.
But Gilt doesn’t resemble a new model so much as the old one: good old-fashioned direct retail, with not-very-webby things like warehouses and inventory management. Gilt’s challenges are, in many ways, the challenges of their traditional brick-and-mortar counterparts.
The dilemma for Tumblr and companies like ToVieFor is much different. They have to work with the industry in a way that doesn’t compete with it (a la Tumblr) or figure out how to disrupt it (which theoretically would have been an option for ToVieFor). It’s an attractive opportunity that has interested many high profile angel investors and venture capitalists, from Ashton Kutcher (who invested in fashion startup Fashism.com) to traditional firms like General Atlantic, which funded flash-sale site Gilt Groupe.
Prior to becoming Fashion Director at Tumblr, Mr. Tong co-founded two fashion startups, Weardrobe and Index F. He also worked as a front end developer at UNICEF. None of these positions involved client services or ad sales, which he now handles as fashion director at Tumblr.
“It makes total sense,” said one selected blogger who spoke to The Observer by phone. “They need to start earning money, and writing about brands, product placement, that is a good way to do it.” The Observer explained that, according to Mr. Tong’s proposal, the bloggers would be submitting 15 posts per week, not to their own blogs, but to the Tumblrs owned by the brands paying the fees. “Oh, wait really?” the blogger asked. “In that case, I would definitely want to be paid, because I would no longer own the content.”
“[Mr. Tong] is David Karp’s friend and that seems to be his main qualification for this job,” said one designer who wasn’t thrilled with the idea, either. “Now they are trying to have us pay for Tumblr bloggers to come to our shows, which is ridiculous. We would never pay a journalist to come cover us, so why would we pay Tumblr?”
But the question of who should get paid for what and why isn’t the dicey situation the company is facing. It’s also an issue of the company’s overall responsiveness to brands, and to users—and its knowledge of the space in which it’s trying to compete.
Raman Kia, the Head of Digital Marketing at Starworks Group, laid things out in a post titled “Exposed: The Actual Problem With Tumblr.” “My team and I represent 15 of the most prestigious and powerful brands in the fashion space,” wrote Mr. Kia. “I have this year tried on two occasions to work with Tumblr on a professional level. So, I am coming to the table from a position of truth and authority.
“It came as a surprise to my client that the person representing Tumblr at this meeting had no idea who my client was,” he continued. “Let me just put this in perspective: This is one of the biggest retailer of luxury fashion in the world (did I already say that?) —and probably one of the most reputable and prestigious. It’s like saying I am the Director of Automotive but I’ve never heard of BMW or Mercedes!”
Mr. Kia had also tried to work with other technology platforms to brand his clients, a sometimes rocky experience. “Let me be clear our experience with all of these platforms has not always been without its problems. Not all Facebook reps have been fantastic, Twitter support for the longest time was hard to come by, Tristan Walker for a long time was a lone ranger at Foursquare—you get the picture—but I can with my hand on my heart say one thing with full confidence: at a senior level all of these networks and platforms showed us empathy in the face of our concerns.” Mr. Kia added, “PS. This blog was written using WordPress. I love Tumblr. I have a Tumblr page. It is really fun—but then again so is the Disney store.”
(Tumblr president and resident grown-up John Maloney issued a terse response on his Tumblr: “Gradatim Ferociter” which translates loosely as, “step by step, courageously.”)
And some of the issues are technical. “Like everyone else, I am amazed at their user growth and engagement,” said a veteran New York techie. “I think they are becoming one of the big ten sites on the web. But at the same time, the evolution of the product has been painfully slow, especially from the business side. With their backend squared away, there should be a team of product people banging stuff out, like you see with Foursquare. Instead you get these little, incremental changes.”
Mr. Kia’s wife, Jessica Coghan, who has also tried to work with Tumblr, and reps brands like Ann Taylor and Kate Spade, was also peeved–and naturally, took to her Tumblr to say so:
“So, I am sure you have all heard that Tumblr is sending some bloggers to fashion week again this season,” she wrote. “I have also had the pleasure of seeing their sponsorship proposal being shopped around to brands, which I am not supposed to be talking about. I will say this… someone is completely out of their goddamn mind.”
Ms. Coghan complained that what Tumblr most needed was an analytics dashboard—a complaint echoed by many other partners and potential partners as a primary technical limitation, usually on Tumblr itself. “We are on all here managing blogs with the help of Google Analytics, but there is nothing catering to the Tumblr-only based metrics—reblogs, likes, followers, etc. There is nothing out there to help brands quantify their presence here. What works? What doesn’t? And it’s not about visitors- it’s about engagement.” And engagement is what makes Tumblr’s “magic”, as Mr. Hecht characterized it, happen.
“They could actually make money from this analytics platform,” wrote Ms. Coghan. “I would pay for it for my clients. I would absolutely get behind a cost like that on an evergreen basis, which has to make way more money than this flash in the pan Fashion Week nonsense.”
But so far, the company has been unable or unwilling to deliver on these kind of dashboard features, even when big brands have offered to pay for them. Tumblr says it’s already “generating meaningful revenue.” Mr. Karp likes to joke with his team that Tumblr could be profitable in a day if it put just one ad on the dashboard. On principle, Mr. Karp said he opposed placing ads on a service that gained traction for its pretty, minimalist design.
And he thinks the company does a perfectly job of understanding the needs of its users and clients. “I’m generally really proud of how we communicate as a company,” Mr. Karp told Reuters social media editor Anthony DeRosa, “It’s not particularly easy when there are so many subsets of the community with dramatically different interests and questions.” Mr. DeRosa, an avid Tumblr user who goes by the handle “SoupSoup” on his blog, recently walked away from the platform in frustration after one too many problems with the service.
Mr. DeRosa ends his piece by noting that, “I walked away from my conversation with Karp feeling like they want to operate similar to the way Apple does, protecting their vision for how their product looks and choosing who gets to appear ‘in their store.’ Apple has managed to make that aspect part of what makes their products great; it remains to be seen if this approach will work for Tumblr as well.”
As for Mr. Karp’s comments that he was proud of how they communicated with their partners, Mr. DeRosa got on the record a story The Observer also heard about Mr. Tong, Tumblr’s fashion director, in which he ignored and then insulted AOL’s StyeList blog. While Tumblr had early success partnering with fashion companies, Mr. Tong soured many of those relationships when he arrived by failing to return emails, showing up to meetings unaware of who the client was, snubbing former partners during fashion week and replying to their hurt feelings with, “You can do business the way you see fit, and we’ll do the same.” The Observer reached out to Tumblr, but the company declined to comment.
And perhaps these sort of problems are the traditional ones—after all, the tech industry didn’t invent customer service or client management, or doing either well or badly.
For her part, ToVieFor’s former founder isn’t sure what her next step is yet. She told The Observer in an email that she’s evaluating two opportunities at the moment and plans to speak more publicly about her experience at ToVieFor and her take on the fashion industry in the next couple months; last week she announced a stealth fashion startup called Elizabeth + Clarke.
Ms. Moore recently wrote some of her thoughts on the fashion 2.0 space in a blog post called, “Building a Fashion Company on the Internet? Please Stop. Just Stop. And Read This,” about the tendency of investors and web entrepreneurs to overemphasize “discoverability” when the real business opportunities are closer to the supply chain.
“Fashion 2.0 is really not that much different than Fashion 1.0,” she wrote. “In order to win, one must focus intently on building a better product that solves a real problem—you know, just like every other successful business in the world.”