With Yahoo’s $1.1 billion acquisition of Tumblr -- the formal announcement is widely reported to be the item on the agenda of a “mystery product event” in New York at 5 p.m. today -- Yahoo is attempting to solve one problem by taking on another one that is ever so nettlesome.
“CEO Marissa Mayer's deal for Tumblr would give Yahoo, one of the original big Internet companies, a fast-growing Web service that could fill one of its many holes -- namely, the lack of a thriving social-networking and communications hub,” write the Wall Street Journal’s Joann S. Lublin, Amir Efrati and Spencer E. Ante. “Tumblr is popular with many younger adults, in contrast with Yahoo's older customer base. Tumblr is also growing more quickly on smartphones than Yahoo.”
Indeed, “Tumblr has over 108 million blogs, with many highly active users, as Michael J. de la Merced, Nick Bilton and Nicole Perlroth point out in the New York Times. “Yet even with all those users, a basic question about Tumblr and other social media sites remains open: Can they make money?”
In other words, will enough marketers cough up enough dollars to make it all worth Mayer’s wiles?
“Like other recent Web startups that have seen rocket ship growth -- see: Twitter, Facebook -- Tumblr resisted advertising for its formative years, and its user base seems particularly unwilling to accept standard banner ads,” writes All Things D’s Kara Swisher, who has been on top of the story from the get-go. “In addition, many industry observers think that Tumblr’s pages are packed with porn or other questionable content that would scare off advertisers.”
But Swisher points out that “modestly sized ‘native ads’ promoting brands’ Tumblr pages, on users’ ‘dashboards,’” brought in $13 million and “could get up to $100 million this year.”
Yahoo's robust infrastructure and back-end reporting systems should help ad sales efforts, Group M Next CEO Chris Copeland tellsAd Age’s Cotton Delo. “Any time you go from the startup world to established companies with good infrastructure around technology and data, there's an opportunity to move forward in helping brands understand what they're getting from you.”
Reports are that Tumblr founder David Karp, 26, and his New York-based team will have a lot of autonomy and that Karp has agreed to stay for at least four years. But “ultimately, Tumblr needs to get woven into Yahoo's fabric,” writes CNET’s Dan Farber. “For a billion dollars, Tumblr needs to accelerate Yahoo's effort to become more pervasive, mobile, social, personalized and profitable, as well as appealing to younger demographics and faster-growing.”
Ad Age’s Simon Dumenco took an entertaining look at Tumblr’s “revenue problem” last month when he told the tale of 21-month-old Charlie Pembroke, whose crying fits became a viral sensation after his dad began to post them on a Tumblr blog called “Reasons My Son Is Crying,” along with clever captions.
“Marketers and media companies are still having a hard time figuring out how to harness the power of Tumblr, and Tumblr itself is having a devil of a time figuring out how to monetize all those eyeballs,” Dumenco writes, pointing out that the Pembrokes did aggregate millions of eyeballs for advertisers on “Good Morning America” the same day that Tumblr announced it was shuttering a small editorial initiative.
Sony may be suffering from some cosmic branding woes, but someone on its social media team also figured out how to make hay of this viral event by sending Dad Pembroke a Nex-5R digital 16.1 mp digital camera.
“It takes pictures as nice as those huge DSLR’s, but it’s much smaller -- more like the size of a point and shoot…,” he subsequently testifies with the touch of a copywriter. “Best of all, in my opinion, is that it has Wifi -- so you can send your pictures straight to your smartphone to upload to the internet without having to sit down at your computer.”
And then Pembroke announced a photo contest in which he’ll be giving away two Nex-5R as prizes.
Of course, this doesn’t come close to solving the billion-dollar dilemma, which is, as the WSJ story puts it, that “the valuations placed on social media sites like Tumblr make little sense under typical financial analysis.”
Then again, it’s basically the same problem that’s been surfacing since the Delphi online service first offered the Internet to the masses in July 1992. Obviously a lot of people have figured out how to make the big bucks since then. And a lot of others, like Delphi itself, never really have.