Is Tumblr the new GeoCities? VC Fred Wilson says no, points to ads

In the late 1990s, web-hosting site GeoCities burst into the world’s top ten websites and attracted $3.5 billion from Yahoo (s yhoo) — then quickly became internet road kill. As investors drool over a new generation of sites like Tumblr that have rocket-like audience growth, does GeoCities provide a cautionary tale?

Fred Wilson is a good person to ask. He’s a prominent venture capitalist who has invested in dozens of tech companies – including Tumblr and, once upon a time, GeoCities too. Speaking at Ad Tech New York on Wednesday, Wilson explained how both companies built massive audiences in a very short period of time by appealing to community and self-expression.

Wilson believes, however, that Tumblr will escape its predecessor’s fate in part because the popular sharing blog is unspoiled by advertising.

“GeoCities slapped ads everywhere. The performance and appearance was ugly,” said Wilson. “At Tumblr, the business model is quite elegant.” (see a GeoCities example at right)

[Update: Wilson also noted that another crucial difference between Tumblr and earlier community services is the story feed; in services like Tumblr or Twitter, the feed makes for a cleaner, more efficient user experience. See his comment below]

The two firms diverging trajectories can partly be explained by capital demands. These days, lower development costs mean Tumblr can serve millions of users but, unlike the days of GeoCities, it can wait years to figure out a money model.

But the Tumblr approach also reflects lessons learned from the Web 1.0 era. Wilson says one of these is that scale must come before monetization: if a company focuses on advertising too soon, chances are that it will build a faulty product that will never scale.

That’s not the only ad insight Wilson picked up from his Geocities days. Like a growing number of execs in the New York tech and media scene, Wilson is a true believer in native advertising.

“If you just slap up some generic ad format, people tune it out and it doesn’t perform,” he argues. “People don’t hate advertising. They hate bad advertising, interruptive ads or poorly targeted ads.”

Wilson thinks sites should follow Twitter’s lead and ensure ad content is the form of an atomic unit that mimics the native content – a tweet on Twitter, a video on YouTube and so on. For the advertiser, the formula is to develop great organic ad content and then pay the platform to promote it. (It should be pointed out that Wilson has stakes in both Twitter and Tumblr; still, the observations seem sound).

Such a strategy, however, poses a challenge for the traditional ad campaign where one piece of content often fits all. The good news, Wilson says, is that ad agencies are adopting by building ads for specific venues and then engaging and managing that content.

(Tumblr CEO about his “design first” philosophy at GigaOM’s RoadMap conference; see video and write up here).