The challenge of monetizing free products

Fred Wilson explaining why the $1bn sale of Tumblr to Yahoo! didn’t generate excitement:

Tumblr really struggled to build a business, a sustainable business that could make it an independent company the way that Twitter successfully did, the way that LinkedIn successfully did, the way that Facebook successfully did. The sale to Yahoo in some ways was, I think, a reflection of the fact that they ran out of time on that.

The sale price was awesome… But I do think that the narrative there wasn’t quite the same thing. It was maybe a little bit like what could’ve been, had Tumblr been able to figure out how to make itself a stand-alone business. Maybe it could’ve ended up going public and being worth five or 10 times what it sold for.

(1) “They ran out of time” — lack of revenue meant that Tumblr wasn’t in control of its own destiny.
(2) The best monetization of a free product avoids taxing the user flow. Tumblr couldn’t figure out how to do that, and it’s not clear that Facebook, Twitter or Yahoo have either.

5 thoughts on “The challenge of monetizing free products

  1. Taxes suck. Google has done a great job of presenting ads that actually add value. Adding value in ads, fees, upgrades doesn’t have to be a tax, it can be a fair exchange.

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