• by Larry Kim , May 28, 2013

There has been a lot of noise over the past couple of days about Yahoo's acquisition of Tumblr being a stupid mistake. As an Internet marketer, I think just the opposite: It's a brilliant move that will make Yahoo billions of dollars -- if it can figure out how to monetize display and mobile as well as Google has. And who's to say it can't?

I believe the Tumblr acquisition has two major implications for the future of paid-search marketing, because it reveals what Marissa Mayer -- who has worked for search king Google and now heads up one of the longest-running search engines -- is thinking. And when someone with so much behind-the-scenes experience in search makes a move like this, we should all pay attention.

Display is undervalued compared to traditional paid search

First, the Tumblr buy shows that Yahoo believes in the power of display advertising. And we believe in it too! We did a study last year on AdWords conversion rates, which revealed that average CPAs (cost per action) on the Google Display Network are actually lower for some industries, like automotive and travel, than Google search CPAs. Across all industries, the average conversion rates from display ads were just 16% behind search ads.

Are you shocked that display ads could pull even or even outperform search? The fact is, display ad advertising has improved by leaps and bounds in the past couple of years as more compelling ad formats, better targeting options like search remarketing, remarketing lists, and other innovations have greatly increased the ROI on display ads.

At the same time, CPCs on Google paid-search ads have become outlandishly expensive in some verticals, topping $50 per click for industries like insurance and loans. This makes traditional search advertising challenging for many businesses, and as a result the advertising budget is being shifted to other options -- like display.

So Yahoo is betting on display to monetize Tumblr. CEO Marissa Mayer promises that platform monetization will be done in a way that will follow the form and function of the platform “in a way that's meaningful” for users, with ads that are “as great as the content.”

The true value of mobile has yet to be realized

Similarly, mobile advertising is still undervalued by marketers. There is a misconception that mobile traffic isn't worth as much as desktop search because Facebook has not figured out how to monetize it and because it was previously very complicated to set up mobile ad campaigns in Google.

I have found the exact opposite to be true. Mobile searchers are further down the purchasing funnel than desktop searchers, are more likely to convert (4x more likely) and take much less time to convert than desktop users.

Approximately half of Tumblr users access the site via mobile. So with this acquisition, Mayer is effectively saying that she believes Yahoo can monetize mobile traffic. I'm putting my bets on mobile too -- I predict that within a year, mobile CPCs will be higher than desktop CPCs.

So was the Tumblr acquisition a good idea? Was it worth the $1.1B price tag? I vote yes on both counts.