In its latest attempt to inject some energy through acquisition, Yahoo is buying content creation platform Tumblr for $1.1bn. But what does Marissa Mayer see in Tumblr’s 26-year-old founder David Karp, and what does the deal mean for the rest of us?
This is a rational deal at a good time for both parties. Clocking 17.5bn monthly page views, Tumblr brings struggling Yahoo the large audience it needs to be a content power player. Meanwhile, five years after being founded, Tumblr’s reported $13m in annual revenue remained small for its scale and for the purported opportunity.
This tie-up is all about leveraging the huge audience Tumblr has amassed – through advertising. Despite having been overtaken by Google, Yahoo remains a top-tier ad sales house, with significant clout to place ads targeted at Tumblr’s youthful readers.
But don’t expect this to play out in such obvious fashion because Tumblr’s Karp in fact hates the kinds of advertising on which Yahoo and the internet have come to depend.
Speaking at Monaco Media Forum in November, Karp agreed that internet ads “suck”: “One of the things I’ve found most disheartening on the internet today is it’s all been defined and relegated to these little blue links. The advertising industry as a whole is an incredibly creative and capable industry… They’ve got these Mad Men aspirations and right now they’re all being squeezed in to these hyper-optimised, hyper-targeted models where you’re basically trying to deliver the little blue link at the exact right moment rather than trying to tell stories that make people want to become customers.”
To that end, Tumblr has introduced its own tools to let brands tell and promote their stories in a different way – Radar and Spotlight are how marketers can buy links to their blogs in curated sections, while Highlighted Posts and Pinned Posts let small-scale creators pay just a few dollars to gain more prominence in readers’ dashboards.
These tools ride the native advertising wave (“content marketing”, “branded content” or “sponsored content”, depending on who you speak to) on which publishers and platforms are now helping marketers to communicate using language that is indistinct from core content, overcoming readers’ increasing aversion to invasive banners and paid links. Thanks to them, Tumblr’s revenue has grown fast from a low base, but the effort can now be taken to the next level.
So Tumblr’s acquisition by Yahoo, whose own ad sales are declining, looks like an investment not in search advertising, not in display advertising, but in a third, new marketing category – content. In announcing the deal, Yahoo says: “The two companies will work together to create advertising opportunities that are seamless and enhance the user experience.”
That seamlessness could solve another looming problem: while Yahoo has blamed its sales dip on audiences’ migration to harder-to-monetise mobile platforms, content retains its shape and essence no matter the device on which it is consumed.
Today’s highly technology-driven advertising economy has been created in the image of Silicon Valley engineers at the likes of Yahoo; all data science and super-efficiency. But Tumblr – which distinguishes its New York stomping ground as a thriving mecca for creatives instead – could represent an energetic east-coast outpost that will help Yahoo sell to a Madison Avenue that is primed to enter the ascendancy once more.
The well-stocked Rolodex in Yahoo’s ad sales office can help introduce Tumblr to tier-A brands that are crying out for new ways to reach consumers using stories. And those stories could benefit from wider delivery across Yahoo’s huge existing audience network.
The idea is a fine one, but is not without its challenges. For one, content marketing is unproven at large scale, which conventional internet advertising is. That scale will have to grow significantly to make good on the $1.1bn acquisition price. And return on investment is harder to prove from this model than from the dominant cost-per-click model.
If the next couple of years’ marketing accounts don’t show real returns from the format, advertisers could easily pull spending back. Even with the model proved, content marketing alone won’t necessarily keep the lights on at Tumblr. If Yahoo foists on it the old-style ads that Karp has opposed, users (and Karp) may feel betrayed.
Critical to the prospect’s chances is the extent of Tumblr’s integration in to the Yahoo mothership. Among 76 acquisitions since 1997, Yahoo is criticised for having let Flickr, Delicious, Broadcast.com and Upcoming.org wither on its vine – innovative services all apparently starved of resources to innovate at Yahoo’s Sunnyvale HQ.
Users previously became agitated when Yahoo began tinkering with GeoCities and Flickr, and recently when Facebook updated Instagram’s terms and conditions. So Yahoo must give Tumblr the room it needs to go on supporting creative content on its own terms, while nevertheless leveraging enough behind-the-scenes commercial support that Tumblr can make back the money Yahoo is putting up.
Much of Tumblr’s popularity rests on its indie credentials and Karp speaks passionately with a mission to serve artists such as Michael Stipe, who are using the service as a blog, scrapbook and portfolio. Tumblr must be allowed to retain this identity, and not adopt Yahoo’s diminishing profile, if the deal is to work. Yahoo has promised it will be “independently operated as a separate business”.
Being on the opposite coast may help Tumblr remain sufficiently distant from its new owner and close enough to its creative local kin to do exactly that.