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.
My take: This deal wreaks of desperation. It’s more about Yahoo (and MM) being cool and less about developing a bizmodel based on naive ads.
Here’s a mix of questions and mini-rants:
1) Since when is anyone to believe that David Karp has any interest whatsoever in making Tumblr a business? He recently said that making money is “not a metric that is particularly important to us.” He once suggested that AdSense “poisoned” the blogosphere. He doesn’t like advertising. Is this really someone that is going to propel Yahoo’s business forward, or is he going to stick around for four years and then leave them to do whatever, just like so many others have done before him.
2) Isn’t there a big difference between Tumblr sites and sites/domains powered by Tumblr? it will be easier to do native ads on the former and probably much harder to do on the latter.
3) I also wonder about the quality of their inventory … How much is porn? How much is self mutilation? How much is worst than that stuff? To date, Tumblr doesn’t seem to care about that stuff (actually, they seem to purposefully look the other way). What impact does that have on Yahoo’s relatively clean reputation? Not good.
4) GeoCities cost Yahoo $3.5 billion, and at the time, people talked about the potential for lots of new ad formats and tons of new inventory. When they boughtBroadcast.com for $5.7 billion, it was a revolutionary move in an attempt to dominate a bold new ad market. This is more of the same, but worse though at a lower cost.
5) Tumblr reportedly costs $40 million/year to run, and given that run rate, they were getting close to needing more cash from investors. Yahoo’s bailout is just in time … Yahoo continues to invest int he consumer web at a time when most VCs are not.
6) John, you have written (in January which is decades ago, I know) about the myth of infinite inventory. You wrote, “There are even fewer places where marketers can be assured of quality, engagement, and appropriate context.” Given that, should Yahoo buy Tumblr for $1 billion?
To those who say yes, I’ll borrow your retort: Hogwash.
George, you make valid points. Karp may not have shown much interest in ads in the past, but Tumblr has changed course in the past year, and Karp is talking about native ads a lot now. And he is selling, which means he won’t be ultimately the decider about what happens at the service anymore.
I have to think Yahoo knows exactly how much of Tumblr is porn. And let’s be honest, Yahoo knows that porn is part of the internet ecosystem, and I’m sure they’ll not put brand ads there! As for that sterling Yahoo reputation, are you familiar with RMX!? Still some work to do there, I’m told.
Like you, I immediately considered the native ad opportunity, and the potential is there. The problem is, it’s Yahoo. “We promise not to screw this up.” This is exactly what someone says right before they screw things up.
The public will quickly tire of so called native advertising like they are bored by advertorials and sponsored supplements from newspapers. Mobile and tablet displays are ahead of the public in disguising content paid for by marketeers. That will change. The public will start to understand where messages are coming from. Consumer regulation will help with transparency. What has driven readers to Gawker? Top ten stories in the last month, for example, are any so called sponsored stories?You are biased because you represent commercial interest which is different from public interest. David Karp knows he hates advertising but he hasn’t found an alternative that works, he’s just found a temporary way to disguise it – he hates it that much. Waste of money.
I’m not sure he hates it that much!
This acq is definitely about making native advertising work for Tumblr.
But me think: Tumblr could have hired a team of 10 savvy people and made this work for themselves purely, no? Let’s be critical for a moment.
yes, the interesting bit is the decision to not go it alone.
But I ask Why? Did they try and not succeed? Did the CEO recognize their limitations, therefore it was time to get help?
I’m asking because it does put a question mark on the ability of startups that are a large networks of engaged users to monetize natively.
Not everyone wants (or even needs) to do the work involved – it’s damn hard, I can tell you from personal experience!
I agree. Either you have the money but can’t/don’t do it, or you know you can do it, but don’t have enough money.
You say “evolve” too much. Way too passive.
Thank you. I’ll try to evolve my writing out of that habit.