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Tumblr, a social media network made up of millions of personal and business blogs, is seeing massive traffic growth, but is undergoing equally big growing pains.

Activity on the network of Tumblr blogs skyrocketed over the first half of the year and reached about 1.7 billion page views in the month of August. (Automattic’s, an older, more established blog platform, recently reported 2.1 billion monthly pageviews.) But Tumblr, which employs about 10 people, has been unable to provide service for hours at a time to its users, because of high traffic.

“It’s got humongous potential, and humongous potential to fail,” said JD Rucker, president of Hasai Media, a digital marketing firm that builds Tumblr blogs for corporate clients. “We know it can fail. It was down 10 hours straight in July. It goes down way too often. How are they going to turn a profit without pissing people off?”

Both WordPress and Posterous, another competing blog service, have experienced downtime, but not nearly at the rate or amount that Tumblr has, Rucker said.

Blogging has a long history. But the space has gotten more competitive over the past year, as investors have funded startups that promise to simplify the process of self-publishing for the masses.

Tumblr, based in New York, raised more than $10 million by April, with three rounds of funding led by Union Square Ventures and Spark Capital. Competitor Posterous raised $4.4 million in March in its first round, led by Redpoint Ventures. Automattic, which hosts blogs on and supports an open-source blog-software platform, has raised about $30 million in venture funding including a strategic investment from The New York Times Co., as well as backing from True Ventures, Polaris Ventures, and Radar Ventures.

The commercial promise of these services remains untested. Six Apart, a blogging pioneer whose TypePad service competes most directly with Automattic’s, recently announced it is folding the simplified blogging service Vox, which never gained firm traction after four years of existence.

Tumblr lets users create their own blogs from an existing library of templates, hosted for free by the company. Tumblr’s success has drawn comparisons to Twitter of 2008 and early 2009, as the company racks up big numbers of new bloggers each day.

Hundreds of companies, too, have created Tumblr blogs because of one simple reason; it does not require users to learn how to use WordPress or any other similar content management system.

Tumblr has not yet made public how it plans to make money, though it has toyed with some ideas, like sales of virtual gifts and premium themes.

“It’s ironic because you can actually put Google Ads on your Tumblr blog if you want and make money that way,” Rucker said. “But the company itself isn’t doing anything like that.”

Tumblr has separated itself from services like Vox in part because of several key features. The service has won over fans who love its flexibility. Some users only post Twitter updates on their blogs, while others put videos or original work.

“You don’t have to grab embed codes,” Rucker said, of the virtues of blogging on Tumblr. “You find a video you want, upload the URL [website address] and you put it in there. Tumblr automatically resizes it for you. You can give this to somebody who can barely program a VCR and they can do a blog post in a minute.”

One of the the most popular features of the service is an option that doesn’t require you to write anything: Users can “reblog” other users’ content, with a link back to the original. That serves commercial users’ purposes in two ways: It spreads content through word of mouth, and it creates links which can potentially boost a piece of content’s ranking in Google and other search engines.

That’s the upside of Tumblr. The downtime and site errors have raised concerns about the long-term scalability of the company and its service, however. Big increases in traffic have brought “Error” messages to visitors. The hurdles come at a crucial time for the site.

“They are definitely growing faster than they can hold,” Rucker said. “And right now it’s an issue because they are at such a delicate stage. They have reached that tipping point where they can explode onto the scene, but all it takes is poor preparation in the form of server problems that could basically piss people off enough to where they might leave.”

Could Tumblr rival Twitter? Rucker says yes.

“Realistically it can easy surpass Twitter in overall value,” he said. “It would be valued at nine figures based on just the page view number. But the real reason is because you can find a whole lot more of value on a Tumblr page potentially than on a Twitter page. People will revisit a Tumblr blog because of a wealth of content whereas they don’t re-visit a Twitter page nearly as much because it is made up of 140-character messages.”

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