Yahoo! And Tumblr: It’s About Display, Streams & Native at Scale

The world is atwitter about Tumblr’s big exit to Yahoo!, and from what I can tell it seems this one is going to really happen (ATD is covering it well).   There are plenty of smart and appropriate takes on why this move makes sense (see GigaOm) but I think a lot of it boils down to the trends driving Yahoo’s massive display business.

If there’s one thing we all know, it’s that a new form of native advertising is spreading throughout the Internet. It started with Google and AdWords, it spread to Twitter and its Promoted Tweets, and Facebook quickly followed with Sponsored Stories. At FMP, we have sponsored posts and our Native Conversationalist suite, which we are scaling now across the “rest of the web” – the smaller but super influential independent sites that we believe are major suppliers of  “the oxygen of the Internet” – the content that drives true engagement. Other companies are adopting similar strategies – Buzzfeed is building a content marketing network, and Sharethrough has moved past its “wrap a YouTube ad in a player and call it native” phase and into more truly native units as well.

The reason native works is because the advertising is treated as a unit of content on the platform where it lives. That may seem obvious, but it’s an important observation. When a brands’s content competes on equal footing alongside a publisher’s content, everyone wins. Those search ads – they win if they are contextually relevant and add value to the consumer’s search results. Those promoted tweets only get promoted if people respond to them – a signal of relevance and value.  The same is true for all truly “native” ad products. If the native ad content is good, it will get engagement. The industry is evolving toward rewarding advertising that doesn’t interrupt and is relevant and value additive. That’s a good thing.

Left out of this evolution, until now, has been Yahoo!. When you break it down, Yahoo! is a Very Large Display Advertising business, with a hefty side of search and a bit of this and that on top. And that display advertising business is going through a wrenching shift, as buyers move to more efficient programmatic channels (for a visualization, see my last post). CPMs (cost per thousand, the unit of value for display advertising) are rapidly declining for “standard display” units – the boxes and rectangles that built Yahoo! and much of the rest of the web.

It will take a couple of years for those ads to A/evolve into new forms that are standardized and B/be driven by data and real-time programmatic rules in ways that brands can really trust (it’s already working for direct response, but that’s not the end game). Display will always be around, but as I said, it’s in a significant evolutionary phase, and the short to mid term reality is this: CPMs are dropping, and Yahoo! has a massive display business.

At the same time, we’re all shifting our attention to mobile devices, and we’ve adopted the “stream” as our preferred method of content discovery and consumption. That stream doesn’t work so well with standard display. But it’s great for native units.

Yahoo! is already shifting its home page and other content sections to a stream like interface. Tumblr offers only native ad units (founder David Karp lifted his strategy pretty much wholesale from Twitter’s “the ad is the tweet” philosophy). And Tumblr was built from the ground up as an activity stream.

I’ll write another time about how I believe that display and native will eventually merge – via the programmatic exchange. For now, Yahoo’s move gives it an asset that its branded display sales force can sell as sexy: native, content-driven advertising at scale. A good move.