Photographer: Jennifer S. Altman

Tumblr founder David Karp

If you’ve heard anything about Yahoo chief executive Marissa Mayer’s announcement that Yahoo would spend $1.1 billion to buy Tumblr, it’s that the deal is about making Yahoo “young” and/or “cool” again. The thinking is that Tumblr, “popular with the highly coveted 18-to-24-year-old demographic,” can bring in an audience attractive to advertisers before Yahoo rides off into the sunset in the tracks of the old America Online. Coming just about exactly a year after Facebook’s initial public offering, it’s a sign for many observers that the social media wars are getting even more heated, with “young” and “cool” as the prize. The risk is that Tumblr’s “cool” users will desert Tumblr if Yahoo makes it old and boring.

As a fan and active user of Tumblr, I find myself puzzled here. I’m not sure what “cool” means in much of the writing about Tumblr. Mostly it seems to me that “young” and “cool” are basically marketing-speak, translating to a vague idea that if you get a lot users who are are young and tech-savvy, another popular buzzword, you can advertise a lot to them. As long as they’re not also broke, which the young and cool often are. “Cool” also may be an awkward euphemism for “stuff that seems mysteriously popular” (read: animated GIFs).

I may have left my 20s behind, but I think I can explain what’s cool about Tumblr without resorting to marketing-speak, and it starts with dropping the idea that Tumblr is involved in some kind of race for dominance among social networks. Tumblr has a social element, but at its core it’s a very elegant publishing platform for anything–from text to images to video–that demands stylish presentation without the full complexity of a magazine. That’s why Tumblr has attracted a following among what folks think of a the creative classes, in areas like art and advertising. That in turn has led to a virtuous cycle in which other designers and developers build tools to make publishing on Tumblr slicker and better.

Want some examples? You don’t have to go far. Bloomberg.com’s photo editors started a Tumblr blog to highlight Bloomberg’s best photos; you can see it here. Then there’s my own experience. My wife is an artist and has used sites built with Tumblr to collect her work online, and as a home base for the painting classes she teaches in New York.

The first of those was built using only free tools. For the second, we invested less than $30 in a beautiful template built by a talented developer and customized it for our needs. These were not just the cheapest options for us: they were also sleeker and more professional-looking than more expensive alternatives. Bigger companies have built Tumblr blogs to communicate with customers. I’ve also used Tumblr for what would probably be called “rapid prototyping,” building mockups of what would turn out to be bigger projects — including this blog.

If all this sounds like an advertisement for Tumblr, that’s OK, because it’s a product I like a lot. And would pay for. That’s where my view of Tumblr diverges from that of many folks.

Apple, even in its darkest days, remained “cool” because Apple’s computers were positioned as a company that made great tools for people in the creative professions. That feels like a much more workable path forward for Tumblr than the plan of advertising to the Abercrombie & Fitch kids that many folks envision. The notion that you can aggregate enough young eyeballs to make randomly throwing advertisements at them profitable has been around since the beginning of the internet age, and so far it hasn’t borne much fruit. Yahoo has tried plenty of variations — The New York Times’s Andrew Ross Sorkin points to Geocities, a $3.6 billion acquisition that turned out to be a big zero. My hope as a Tumblr user is that Yahoo has something better in mind.

Right now Tumblr hosts 108.8 million blogs. Undoubtedly a great number of those are brief experiments. Just as many folks join Twitter, post once or twice and realize that they’re more interested in reading than posting, so too with Tumblr. And many users, myself included, have set up more than one Tumblr. That still likely leaves hundreds of thousands of people for whom Tumblr has turned out to be a genuinely useful platform for communication. As one of them, I’d be willing to pay for Tumblr now (no, I’m not volunteering to send Yahoo a donation) and probably willing to pay for more features later.

Yahoo could try to make money from Tumblr by crowding out content with ads purported to appeal to teens and twentysomethings. That’s the MySpace model – not a big hit. Or Mayer can look to active users like me, keep improving Tumblr, and charge money for a killer product. That seems a little cooler.

Photograph by Hans Neleman

Techno-utopians have long heralded a future industry that deals purely with intellectual property. We’re now a little bit closer.

Bloomberg’s Ian King yesterday wrote about the increasingly fierce challenges that ARM Holdings Plc, the Cambridge, England-based designer of computer chips that dominates the mobile market, poses to Intel Corp. It’s a timely take on the rise of ARM–an important story that’s been two decades in the making.

ARM marks the first really big success for a “chipless chip company,” an idea that sounds terrific in theory but has usually turned out to be difficult to execute. The unlikely sounding “chipless chip” model builds on the older “fabless chip” concept, in which companies would design semiconductors and then contract out the manufacturing to specialists. The ARM model goes one better: instead of contracting out manufacturing, ARM designs the core logic of the chip, and licenses the design for others to build and customize.

The company that was first prominently associated with this idea was Rambus Inc., a memory chip designer. Unfortunately, most of Rambus’s great hopes were punctured by the spears of endless litigation. ARM, too, sputtered for many years before gaining steam. Now virtually all the chips that power high-end tablets and smartphones are based on ARM designs. The iPhone and iPad use ARM cores. So does the Samsung Galaxy range. Nokia’s Lumia Windows 8 phones? ARM, too.

ARM has skyrocketed to a market capitalization of $20 billion. That’s still a fraction of some of the biggest tech companies; the difference is that ARM has a lot fewer employees–just 2,392 at the end of 2012. On a per-employee basis, ARM’s stock market value blows away many better know companies. Look at the chart here. ARM’s market capitalization is now almost $8.4 million per employee. Apple’s, by comparison, is less than $6 million. For Intel–which has 105,000 employees–the number is about $1 million.

All of this raises two questions. First, is ARM now a story of great success–or still one of great expectations? Though it’s solidly profitable, ARM’s profits aren’t nearly as outsized as its market capitalization. Last year the company earned about $67,000 per employee, still less than Intel’s $104,000 and less than one-eighth Apple’s $573,000.

Second question: is this a realistic model for the future of the technology industry? That’s really the big kahuna here. ARM represents a vision of innovation that is close the hearts of folks who see a future dominated by “knowledge workers,” creators of intellectual property in places like Silicon Valley and Cambridge, England implemented by less advanced companies around the world. This is a utopia for the folks lucky to work at a company like ARM, and potentially a nightmare for a lot more: Remember, ARM has just 2,400 employees.

We’re not as close to this as some techno-utopians (or dystopians: it’s hard to decide here) may imagine. There’s another piece to the ARM story: every company that licenses ARM’s intellectual property is a technological innovator in its own right. Consider Silicon Valley-based NVIDIA Corp., whose Tegra 3 processors put together ARM’s basic design with high speed graphics circuitry that is NVIDIA’s expertise.

You can make a similar case using many of ARM’s other licensees. Building a new mobile phone? NVIDIA Inc. and Qualcomm Corp. will each be happy to give you a rundown on why their flavors of ARM chips are the best. Measured by profit per employee, for now both of those companies are ahead of ARM. That may not remain the case forever. ARM’s gotten to the point where it has proven that a relatively small company purely focused on creating intellectual property can have a become a serious contender in key technologies and get a meaningful slice of the profits. Fortunately, that slice comes from a big pie.

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After slipping on a 79 percent drop in profit, Facebook Inc. regained most of the lost ground and ended the day down less than one percent from yesterday’s close. It’s a very different scenario from the days following Facebook’s initial public offering. Then, any hint of bad news sent the stock down. Now the momentum seems to have shifted in Facebook’s favor. If the market has animal spirits, they are nuzzling up to Mark Zuckerberg.

In a post last week, The Market Now covered how forgiving the market has been of Amazon.com Inc. for many years. Facebook seems to be taking pages out of Jeff Bezos’s playbook, directing attention to the good (rising mobile revenue) and justifying the bad (falling net income) as an investment in the future.

The difference is that at this stage in the history of technology, it’s hard to see maintaining the land-grab justification for very long. Facebook can’t really say it’s spending to acquire users — it has more than a billion. The company obviously still has plenty of room to make inroads in mobile. The hard part for Facebook has been making money off all the users it does have. It’s not clear that’ll be easier on a four-inch screen.

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Photographer: David Paul Morris/Bloomberg

Jim Hedrick, an advanced organic materials scientist for IBM Research at Almaden, a major IBM research centers.

International Business Machines Corp. for the 20th straight year was granted more U.S. patents than any other company, with 6,478. That’s heart-warming news for IBM. The rest of the list will provide plenty of fodder for discussions of the nation’s place in the world, of the “Is the U.S. falling behind?” variety.

What, though, do the patent rankings mean? One company you don’t see on the top 10 patent list is Apple Inc. Apple does have a fair number of patents. It has been quickly climbing the ranks in recent years, going from No. 46 in 2010 (with 563 patents) to No. 39 in 2011 (676 patents) to No. 22 (1,136 patents) last year. The top 10 chart is below; you can see a top 50 chart here.

Nonetheless, Apple is still not on the top 10 list, and it’s even behind Hewlett-Packard Corp., No. 15 on this year’s list. That likely says more about patents than about Apple. After all of HP’s management mistakes you’re not likely to find many folks who would rather be in HP’s shoes than Apple’s. Patent counts may be a rough gauge of how much attention companies devote to research or research and development; they don’t seem to be that great a gauge of how well that research translates into products.

That’s an irony, since the idea of patent protection was to protect innovators’ position in the market. If you can’t translate your innovation to marketable products, you have no market to protect. You can rise on the patent charts by accumulating patents as a byproduct of building products, or by building products as a byproduct of accumulating patents. The first is the more sustainable plan.

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