You Only Have to Be Right Once (10 page)

Added Botha: “Tumblr wouldn't be Tumblr without David. He needs to be a part of the core business if we're going to make this a spectacular success.”

• • •

FOR TUMBLR—AND YAHOO, WHICH
bet $1 billion on Karp—spectacular success now boils down to one metric: profits. As recently as 2009 it was still trendy to doubt whether advertising or commerce could thrive on social platforms or whether users would rebel at intrusions into their personal conversations and creepy behavioral targeting.

For all its well-documented growing pains, Facebook has proven social's revenue efficacy several times over—when it first crossed into the black in 2009 and, more recently, when it revealed that its nascent advertising efforts on mobile are already driving more than half of its $8 billion in annual revenue. Twitter, while smaller, is on a similar trajectory, with $665 million in ad revenues in 2013.

Tumblr, said Sabet, is “where Twitter was two or three years ago.” Now the company has to evolve into a sales machine, something that's clearly not Karp's forte: While no longer a teenage shoe gazer, he's still too shy and introverted for the table-pounding, back-slapping role. That explains why Tumblr, before the Yahoo deal, poached Groupon's Lee Brown, a ten-year Yahoo vet, to become its head salesman and armed him with a dozen sellers, focused on bringing in sponsors like AT&T, GE, and American Apparel. In February 2014, Yahoo announced that Tumblr's sponsored posts would become the focus of the parent company's native advertising strategy across all its properties (“native” being industry lingo for seamless, non-interruptive marketing messages).

Before Karp lifted his ad ban, the only real monetization of Tumblr came from other people. More than 100 writers have leveraged their Tumblr blogs into books, and several have scored TV deals, including Lauren Bachelis, whose
Hollywood Assistants
was adapted by CBS, and Emma Koenig, whose
F—k! I'm in My Twenties
went into development at NBC. (Neither project ultimately made it to air.) Commerce within Tumblr has mostly revolved around the creation and licensing of design “themes” for users looking to spruce up their pages. “For the people who are making those themes, it's incredibly lucrative,” said Chris Mohney, who was editor-in-chief of the in-house news organ Storyboard, which shut down in 2013. But it's less so for Tumblr itself, whose cut of the sales added up to less than $5 million annually, reports the research firm PrivCo.

But if Tumblr's early moneymaking efforts were modest, its ambitions are outsized. Karp proposes to reinvent Internet advertising all over again and to do it while eschewing the path blazed by Google, Facebook, and Twitter.

In his critique of those companies' offerings, the normally polite-to-a-fault Karp doesn't pull punches. “Hyper-hyper-targeting of little blue links” is how he dismisses them. In 2010 he made headlines by publicly declaring that Web advertising “really turns our stomachs” and would never wind up on his network, a remark Karp's nervous investors have been urging him to explain now that the division's sales reps have started calling on Madison Avenue.

Here's what he said he meant: Those “little blue links” are effective, but only in the most limited way, at the narrow end of the so-called purchase funnel. “It's about grabbing you at the moment you're ready to buy,” said Karp. Google, Facebook, and Twitter can use a combination of behavioral targeting and borrowed social relevance to do that with a high degree of success, but they have little effect on consumers' attitudes and emotions. That's the job of so-called brand advertising.

Right now, despite the great migration of time and money to the Internet, almost all brand messaging occurs in traditional media, especially TV. “There's $50 billion in brand, but none of it's really on the Web,” added Tumblr's revenue guy Webb.

The spenders of that $50 billion, Karp says, are awaiting digital advertising formats whose artistry and expression forge an emotional connection with consumers—the sort, romanticized in
Mad Men
and celebrated in Super Bowl commercials, that can make them laugh, cry, or call their mothers.

The same tools that make Tumblr a favored medium for creative types make it the ultimate blank canvas for marketers. What brands pay for isn't the ability to create content—that's free for anyone—but the ability to promote it in the form of sponsored mobile or Web posts. They can also pay to have brands promoted in Spotlight (an accounts-to-follow suggestion) or Radar (editors' picks). Together these two venues generate more than 120 million impressions per day. The vast majority goes to organically popular content, but 5 percent to 20 percent of those are made available for paid promotion. Rates are relatively high: The cost for a thousand impressions (CPM) ranges from $4 to $7, pushing into the premium end of the digital ad market. (Facebook's CPMs range from 30 cents for small, generic banners to almost $10 for certain types of social ads delivered over mobile devices.)

Ad agency Droga5 used Tumblr to promote the launch of Kraft's new, youth-targeted chewing gum brand, iD. One piece of content created for the campaign, an animated GIF of a dinosaur, was promoted through Radar and got more than 40,000 interactions, according to Chet Gulland, the agency's head of digital strategy. About half were “reblogs,” meaning users essentially reposted the ads on their own pages and shared them with their friends. “It was really exciting to have a platform like that where you could reach a huge audience of exactly the right people and they seem so willing to engage with it,” he said.

The iD campaign also ran on Facebook, which, like Tumblr, charges for the ability to promote content. But recent changes to the algorithm governing Facebook's main news feed have made it harder for brands to get their content seen without paying for extra promotion; some have likened this to extortion. In an angry blog post about the changes, Dallas Mavericks owner Mark Cuban cited Tumblr as a platform that brands should consider as an alternative to Facebook's strong-arm tactics. “David has done a great job of making Tumblr a staple of younger demographics, to the point where for many it's replacing Facebook as a day-to-day destination,” said Cuban. (The two are acquaintances.)

Another key difference is privacy. Whereas Facebook exploits users' data to target them with specific ads, Tumblr is less invasive. “We don't want to get mired in that crazy, scary privacy world Facebook is in,” said Webb. “That's a big red line for us.”

A dotted line, perhaps: After merging into Yahoo and gaining access to its ad-serving technology, Tumblr finally started using users' location and gender to target sponsored posts. But even were Tumblr to match Facebook's degree of behavioral-targeting wizardry, it's doubtful it could ever come close to its audience, much less its revenue. Whereas Mark Zuckerberg's company strives to “make the world more open and connected,” Tumblr's motto invites users to “Follow the world's creators.” Catering to artists gave Tumblr an identity and a ready-made market but, in the long run, it's measured in the hundreds of millions, not billions, of members. The whole world may not need a Tumblr. “I do sort of wonder how they're going to transition from where they are today,” said Gartner's Blau. “Tumblr has to change the perception that they're only for the creative crowd.”

The key challenge for Tumblr going forward is the same one confronting every social network phenomenon: how successfully it can accommodate an audience that is rapidly transitioning from laptops and desktops to tablets and smartphones—and learn to make money off it. Though Tumblr's minimalist design and intuitive navigation leave it better positioned for the move, it's still a critical juncture. “This company was born on the Web,” said Sabet. “It was not a mobile-first company, as it were.”

Low-rated mobile apps that were initially outsourced have been redone in-house and now receive much higher ratings from users. Though Tumblr still hasn't quite figured out how some of its most popular features, like a browser bookmarklet that streamlines the sharing of Web pages, translate into the app universe, time spent on its mobile app is growing three times as fast as on the Web.

Karp's a quick study on this. Besides, his mentors aren't afraid to give him a good, hard correction when they think he needs one. “For all my learning how to be a CEO, I've made way fewer mistakes,” he said, thanks to “that support system I really trusted who could grab me by the back of the sweater and say, ‘David, you should pay attention.'”

These days, when Karp gets the urge to tinker, he doesn't dive into code. Instead, he rolls up his sleeves and works on one of his three motorcycles. While that may seem to violate his rule against accumulating stuff, he likes how simple they are compared with cars. Almost no one can fix his own jalopy anymore, but with bikes, he said, “it's all hanging out. Anything you want to get to, you can just pull it out and work on it.” Plus, you can't have more than one backseat driver.

Nick Woodman, GoPro:
Chasing the Thrillionaire

It's hard to get too jealous of Sean Parker, Drew Houston, and other hacker prodigies, who took to computers the way Mozart took to piano. But then there's Nicholas Woodman, the surfer dude who decided that he really needed to figure out how to take pictures of himself on the waves with a disposable camera. He's now a billionaire and not yet forty. The GoPro founder is also an apt reminder of two things: First, that technology has blown everything wide open. An idea that only Eastman Kodak could have pulled off a generation ago—assuming, of course, their corporate-think could have even conjured it—can now be executed by a kid with his mom's sewing kit and the phone number for a random manufacturer in China. (A huge dose of social media doesn't hurt.) Second, pluck is as important as brains. Woodman was so determined to make GoPro work that he fed himself intravenously and peed out the window, saving the time needed to walk to the kitchen and bathroom.
Ryan Mac
got to see this man-teen's determination firsthand in 2013, from the slopes of Montana to the waves of Mavericks to the skies over California wine country.

 

N
ick Woodman turned thirty-nine in 2014. His constantly tousled sepia hair and permanent, mischievous half-grin make him look twenty-nine. And he acts nineteen, as I learned 30,000 feet above the Rocky Mountains, after Woodman packed me, his wife, Jill, and a dozen of his favorite colleagues and buds into a chartered Gulfstream III en route to Montana's Yellowstone Club, the most exclusive ski hill in the U.S.

Already hopped up on Red Bull, tempered by a liter of coconut water, Woodman darted about the cabin, occasionally breaking conversation to unleash his trademark excited wail that friends liken to a foghorn. “YEEEEEEEEEEEEEOW.” A flight attendant emerged with breakfast on a silver platter. “You know what the best thing about morning ski trips is?” he asked the cabin rhetorically. “McDonald's!” And with that he inhaled a McGriddle in all of three bites.

The man-teen routine was more than an act: It's the recipe for how he's become one of America's youngest billionaires. A decade ago, Woodman craved a camera he could strap to his wrist so that his buddies could see his surfing exploits. The result is GoPro, America's fastest-growing digital imaging company.

Go anywhere active, whether it's the mountains of Vail or the scuba-diving depths of Honolulu's Hanauma Bay, and you're bound to see a GoPro or twenty. Kids these days don't film their wave rides or half-pipe tricks. They GoPro them, strapping the $200 to $400 cameras to helmets, handlebars, and surfboards. The cinema-grade, panoramic “point-of-view” footage that comes out of a GoPro transforms mere mortals into human highlight reels, without blowing a huge hole in the budget. Shaun White, who says he used to tape old cameras to his hand, used GoPros on his runs during the 2014 Winter Olympics. Hollywood directors, including Michael Bay, keep crates of them on set. The NFL has tested them in their end zone pylons to capture touchdown replays. The Rolling Stones deployed them on stage. Police forces and the U.S. military have started to incorporate the cameras into training exercises. Woodman, who calls it a “life” camera, proved the point by wearing one on his chest during the hospital deliveries of both his sons. On the plane to Montana, Woodman's GoPro crew rigged their devices in every cranny in the cabin, including on the pilots' heads, to document their journey.

Up until 2013, GoPro sales doubled every year since the first camera's debut in 2004 and it now accounts for about 45 percent of all digital camcorder sales in the United States. In 2013 the company sold 3.8 million cameras and grossed $1 billion. Impressive numbers that fueled a succesfull June 2014 IPO that raised $430 million.

Even prior to that, Woodman had already made his nut. Chinese electronics manufacturer Hon Hai Precision Co., better known as Foxconn, the guys who make zillions of iPhones, made a $200 million investment in GoPro in December 2012. That valued the San Mateo, California firm at $2.25 billion and shot Woodman onto the
Forbes
World's Billionaires list. Following GoPro's IPO, he still owned a little under 50 percent. His net worth now hovers around $2.5 billion.

It's a head-spinning turn of events for a Peter Pan, still south of forty, running a billion-dollar technology company. As he barreled through Yellowstone's freshly groomed powder in a pea-green helmet, it's clear Woodman has found bliss. “YEEEEEEEEEEEEEEEOW,” he howled from his bloodied and chapped lips as he GoPro'd his every turn.

• • •

AS THE YOUNGEST OF
four children, Woodman has always been something of a schemer. Growing up in Silicon Valley's prosperous Atherton (his father brokered Pepsi's purchase of Taco Bell), he was, as his teachers recall, a “supremely confident” boy who wasn't afraid to challenge those in charge. “There was always a smile on his face, either a great big one or a kind of sly, smirky thing,” said Craig Schoof, Woodman's former baseball coach and history teacher. “There was the, ‘Yeah, I'm happy,' or the ‘Yeah, I'm happy, and I'm planning something.'” He once made a fiver by betting a biology teacher he could run a mile under six minutes (he ran it in 5:40).

Woodman focused more on sports than books, maintaining a B+ average and copping a middling SAT score. He eventually became wave-obsessed, attending the University of California, San Diego because of its proximity to sunshine and salt water. “I remember my parents not being very supportive of it,” he said. “But if I didn't follow my passion for surfing . . . I would have never come up with the concept to make a wrist camera.”

That concept came a few years after college after an online gaming service he started, Funbug, went belly-up in the dot-com crash of 2000–2001, taking with it $3.9 million of investors' money. “I'd never failed at anything before except computer science engineering classes,” he said. “So it was like, ‘Holy shit, maybe I'm not capable of doing this.'”

To get his head straight again, Woodman lit out on a surf odyssey through Australia and Indonesia, one last big trip before what he figured would become a life of comfortable middle-class monotony. He brought a contraption he'd made out of a broken surfboard leash and rubber bands that allowed him to dangle a Kodak disposable camera to his wrist for easy operation when the perfect wave hit. Close friend and current GoPro creative director Brad Schmidt met Woodman in Indonesia and became one of the first to toy with the strap. One of his first observations: Woodman needed a camera durable enough to take the wear and tear of the sea. Five months into being a surf bum, a recharged Woodman returned to California with the seed of an idea.

Woodman, then twenty-seven, holed up in the house he shared in Moss Beach, California, just over the hills from Silicon Valley. He “checked out” from his normal life, including friends and family, locking himself in his beachside bedroom to build his first prototypes. Deciding that he had to sell the strap, the camera, and the casing, he armed himself with a drill and his mother's sewing machine and, strapped on a CamelBak filled half with Gatorade and half with water (negating the thirty-second walk to the kitchen) for eighteen-hour work sessions. “I'd have a sliding door to the outside so I could just go take a pee out on the bushes out on the side,” Woodman recalled. He gave himself four years to make it work before he would drop his idea and enter the workforce. “I was so scared that I would fail again that I was totally committed to succeed.”

“After he took off, he was like, ‘I think I'm going to start this wrist strap company for surfers,'” said Schmidt, who was skeptical. Added Woodman: “I thought to myself, ‘If I made a few hundred grand a year, I'm, like, in heaven.'”

Between sewing together old wetsuit material and drilling holes in raw plastic, Woodman was constantly trolling online and at trade shows for a camera he could modify and license as his own. He settled on a $3.05 35-millimeter model made in China, sending his plastic cases and $5,000 on a prayer to an unknown entity named Hotax. Woodman received his 3-D models and renderings a few months later and sold his first product in September 2004 at an action-sports trade show in San Diego.

That was the first validation for Woodman, whose friends thought their former surfing buddy had held his breath underwater for a little too long. Neil Dana, his roommate and first hire, recalls a work-obsessed guy constantly fixated on success. “We would be at a party,” Dana recalled, “and he would come up the stairs and be like, ‘Dude, check this out, this is how we're going to become millionaires!'” Woodman was only three zeroes off.

GoPro grossed $350,000 in its first full year of sales. Woodman was the all-in-one product engineer, R&D head, salesman, and packaging model. He and Dana rang up surf shops across the country hoping to get some of their product out of Woodman's father's home in Sausalito and into the market. In 2005 he appeared on QVC three times, running into Spanx founder and fellow future billionaire Sara Blakely while she was building her company as well. (“If she remembers me, I'll be amazed,” said Woodman. “But I'd love to get word to her to give her a digital high-five on crushing it.”)

Woodman eschewed venture capital as he grew—a by-product of his Funbug experience and a desire to work without suits interfering. Said Dana, “He wanted to keep it private for as long as possible so he could get a Lotus for ‘product testing' and do things and not have to answer to a board about it.” At the outset Woodman dropped in $30,000 of his own money, as well as $35,000 from his mother and two $100,000 investments from his father. The company made money from that point on and today boasts gross profit margins of about 37 percent, as of the end of 2013. It wasn't until May 2011 that GoPro took on $88 million from five venture firms, including Riverwood Capital, led by former Flextronics CEO Michael Marks, and Steamboat Ventures, Disney's venture investment arm, which allowed him, his family, and some early executives to take a good chunk of cash out.

That's how Woodman can now fly via G-III, versus the days he spent sleeping out in his 1971 Volkswagen bus or driving Penske trucks to set up trade show booths with accessories he would later return to Home Depot after use. Back then he was a trade show fiend, learning to sweet-talk executives and sell his passion on the floors of conference centers from San Diego to Salt Lake City. His big break: REI. Woodman spent months messaging executives and shooting over progress reports before the outdoor sports giant succumbed, giving the company (which is still technically called Woodman Labs) a huge dose of validation.

With 2007 revenue in the low seven figures, Woodman had a crisis of confidence. GoPro's founder worried that he “couldn't take the company any further” and agreed to turn over majority control to a group of outside investors. And that deal likely would have gone down except for the 2008 financial crisis. The investors wanted to lower the valuation, and Woodman, his pride hurt and his spine stiffened, refused. “We were going up and to the right, and the economy wasn't even affecting GoPro,” he said. The company wound up exceeding $8 million in sales that year and has continued its organic growth. The next turning point came in 2010 when Best Buy began carrying GoPro. Woodman's little idea had gone mainstream.

• • •

A LITTLE MORE THAN
seventy-two hours after the ski trip to Big Sky country, a handful from GoPro's team and I were half a mile off the coast of Half Moon Bay, California, in a watercraft normally reserved for Navy Seals. Two hundred yards away, the world's best surfers hurtled down the famed Mavericks surf break armed only with longboards, hubris, and—yes, GoPros.

From our vessel, part of a forty-watercraft flotilla of paddleboards, pleasure craft, and dinghies, we watched 35-foot waves crash and clatter, mixing sea spray with diesel fumes. Woodman tested the first GoPro prototypes near these same icy waters. Looking around, the cameras were ubiquitous, dangling from the mouths of surfers, held up by spectators and strapped to the helmets of Jet Ski–zipping water rescuers. “You gotta GoPro the GoPro boat,” yelled out one onlooker from her craft, proceeding to point her gray box toward our vessel. Hours later, footage of our boat and the day's surfers ended up on YouTube.

Indeed, social media friendliness explains how GoPro went from niche to blockbuster. In the hands of the right athletes, the footage shot on a point-of-view action camera is viral crack. For weekend warriors, it's the easiest way to get your own three minutes of glory.

Though Woodman personally lacks a Twitter account and is inactive on Facebook, he spends millions of dollars a year to make sure the GoPro name is hashtagged with that blood-pumping shot of the GoPro-backed Shaun White pulling off a 1080, or Felix Baumgartner plunging toward the ground from the upper echelons of Earth's atmosphere (Baumgartner wore five GoPros on his record-breaking jump). “We're building one of the world's most engaging and exciting consumer brands, and it's largely on the content that our customers are creating with their GoPros,” Woodman said. GoPro boasts about 500 million views on its YouTube channel and 7.5 million likes on Facebook.

“It's funny to see so many people with them, but it makes sense and that's great for the brand,” said surfer Kelly Slater, one of the many GoPro-sponsored athletes. “They've quickly monopolized the idea in a way Band-Aid or Q-tip has where everyone refers to these types of shots as GoPro shots or expect they must've been shot with one.”

GoPro's competitors are the first to acknowledge this. Giovanni Tomaselli, founder of action camera maker iON Worldwide, said Woodman “deserves to be a billionaire” for his innovation and that iON had “taken a leaf out of [GoPro's] book” when it came to promoting its first products, which launched in 2012. But he remained defiant: “We do not believe this category is one-size-fits-all.”