Is a Yahoo-Owned Tumblr More Attractive to Brands?

The $1.1 Billion Deal Gives Microblogging Platform Sales Cred, But a Bid to Ramp Up Ad Revenue Could Disrupt Product

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This story has been updated.

Like a host of other brands, Yahoo has a millennial problem, and its acquisition of Tumblr could be a step toward fixing it. But will new ownership help Tumblr with one of its biggest problems -- drawing major advertisers?

All Things D on Sunday morning reported that the Yahoo board unanimously approved the deal to buy Tumblr for $1.1 billion.

For CEO Marissa Mayer's Yahoo, the deal checks many boxes: social, mobile, content and buzzed-about native ads, which Yahoo recently introduced to its home page.

Tumblr CEO David Karp
Tumblr CEO David Karp Credit: Patrick Butler

The deal also makes sense for Tumblr, a 6-year-old company that's raised $125 million to date but just began building out an ad platform last year, with an emphasis on formats that blend with its aesthetic, which is about beautiful visuals and animated GIFs.

According to All Things D, Tumblr CEO David Karp will remain at Yahoo for at least four years and retain a lot of control over the service.

Tumblr's sales team is still small and its products still deemed experimental, though its head of sales, Lee Brown (a 10-year veteran of Yahoo himself), has said that he expects the company to become profitable this year. Yahoo's relationships with ad agencies and marketers will certainly help Tumblr's business along.

"It would give Tumblr an opportunity to expand their ad packages, and it certainly help them with the sheer organizational needs of ad sales," said Paul Gunning, CEO of Tribal Worldwide.

Tumblr -- which has about 175 employees -- would also benefit from Yahoo's infrastructure and back-end reporting systems, according to Chris Copeland, CEO of Group M Next. "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," Mr. Copeland said.

Integrating acquired content and inventory can be challenging, however, something Yahoo lived through when it bought Right Media, Mr. Copeland observed. And while Facebook's expensive purchase of Instagram last year so far looks like a success -- and thus far Facebook appears to have taken a hands-off approach, letting the Instagram team focus on growing its user base instead of introducing ads -- there are some notorious flops when it comes to tech darlings being gobbled up by bigger companies.

Yahoo's 2005 acquisition of Flickr eventually resulted in the photo-sharing site falling off the map after years of mismanagement.

"What makes Tumblr such an attractive acquisition is it has so much credibility among this audience that Yahoo and others are seeking -- this 18-to-24 sweet spot," said Ming Linsley, MEC's senior director of social media. "The concern everyone has is whether or not Tumblr will lose its credibility if it's acquired by Yahoo."

And like with all marriages, there's the possibility that Yahoo and Tumblr are ill-suited for each other even if their mutual attraction is strong. Deep Focus CEO Ian Schafer, whose agency is one Tumblr's preferred partners, said he thinks about the site much more as a marketing solution for brands that are savvy about publishing content than as a standard advertising vehicle.

Tumblr has been building its ad platform in its slow and methodical way, and recently introduced ads to users' feeds on mobile devices only). But it may not be building it fast enough to suit an ad revenue-driven media company that's under intense pressure to deliver for Wall Street -- especially at a $1 billion price tag. It seems unlikely that Yahoo would be content to step back and continue to let Tumblr do its thing with its product.

"Tumblr's been the biggest exercise in patience, certainly for its investors," Mr. Schafer said. "I can't imagine Yahoo's going to continue the patience tour."

Yahoo's stock was down 0.3% Friday, trading at $26.50 a share.

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