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Why Yahoo Might Pay $1 Billion For Tumblr: Brands!

Stashed in: Tumblr!, Mobile!, Yahoo!, Advertising, Awesome, @semil, @marissamayer, Imgur!, Active Users, Advertising, @daniellemorrill

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Jim Edwards makes some excellent points:

Tumblr CEO David Karp used to be actively disinterested in advertising. (He once said it "turns our stomachs.") He preferred to perfect Tumblr's user experience and scale up its member base. Back in 2011, Tumblr's sponsorship efforts were a joke. It only began taking ad dollars a year ago.

More recently, however, Tumblr has taken several steps that show it is serious about monetizing its 90 million daily posts from its 100 million bloggers. A lot of them are reminiscent of Facebook's path to its IPO, and after that the acquisition of Instagram:

  • Tumblr has started offering sponsored posts in the feeds of mobile users, just like Facebook does with "sponsored stories."
  • It hired a new head of ad sales, Lee Brown, from Groupon. When Facebook hired Carolyn Everson as head of its ad sales, from Microsoft, it changed the way ad agencies viewed the site — and money poured in.
  • Tumblr has named a Creative A-List of agencies it likes to work with — a bit like Facebook's Preferred Marketing Developer list of approved ad suppliers.
  • Tumblr has begun to beef up its analytic offerings — because advertisers don't want to touch media if they can't measure what they're getting for their money.
  • Tumblr suffers from the same initial problem advertisers had with Facebook: That once brands have made a few posts on their Tumblr, they get bored of using the free tools and their activity drops off. Creating free content that's cool and engaging is difficult and time consuming. It's easier to just advertise and pay for the forced exposure.
  • And advertisers have grumbled about not "getting"  Tumblr, just as they used to about Facebook. Digiday reported, "One provider of social management tools said literally no clients had pushed for Tumblr to be included. That’s a major red flag."

What most people misunderstand about Tumblr, and what Yahoo may feel is worth paying for, is that Tumblr is NOT best described as a "blogging platform."

Sure, users have blogs on which they post things. But once you're a Tumblr user, you find that the real fun of Tumblr is building a news feed that only you can see from other users you like. Want an all-skateboarding-all-the-time news feed? Tumblr. As members begin to follow each other, they start messaging each other.

The real party on Tumblr is going on behind the dashboard, not on the blogs' outer faces.

That party is why Tumblr has become so big among young people — it's basically a cool social hangout that their parents haven't figured out yet.

Tumblr's dashboard feeds are obviously easy to monetize in the future, just as Facebook and Instagram's friend feeds are and will be.

Which is why $1 billion suddenly doesn't seem completely crazy for a $13 million startup.

The whole article:

Or, how a cool dude with great community projects was transformed by money.I wonder how long imgur will resist.

Imgur will resist a lot longer than Tumblr.

Tumblr never figured out how to make money. Imgur has always been profitable.

Yeah I don't know. Google got Picasa, Yahoo got Flickr, Facebook got Instagram. I'm already seeing Microsoft charging Imgur with billions of $ to get their own fashion website.

Do you think Alan and Sarah can resist to this temptation?

Yes, definitely they can resist. They are interested in staying independent as long as possible.

You wouldn't know it by looking at the slender, 6'1" designer, but on paper, David Karp is worth a cool $200 million. And that's before any type of potential Yahoo or Facebook acquisition.


Heh. David Karp is more highly evolved to a place where gender doesn't matter.

Well, in a few days he can buy one or two.

Tumblr has grown quickly. In March, the blogging site had about 117 million unique users world-wide, up from about 58 million a year earlier, according to comScore. On smartphones, Tumblr had almost 12 million unique visitors, up from about four million a year earlier, comScore said.

Yahoo has a bigger presence on mobile devices but it is growing much slower. In March, Yahoo claimed about 84 million unique smartphone visitors, up from around 63 million a year earlier, comScore said.


Jay Yarow and Nicholas Carlson explain why this is a great idea:

David Karp has gotten lots of offers to sell Tumblr at prices that would make him rich over the years, and he's resisted them all.

Why would he sell this time?

Easy: Karp and Tumblr have problems like never before…

  • Tumblr does not have a COO and the board wants him to hire one, 
  • Tumblr is light on revenues. (Karp disputed this in an earlier story, but sources told us Tumblr is doing OK on revenues – it's marginally behind plan.)
  • Tumblr needs cash to keep running and growing.

Selling to Mayer solves all those problems. 

To keep Tumblr's servers going, Yahoo has billions of dollars in cash. As for revenues and a COO?

Mayer, we're guessing, will tell Karp not to worry about either for now. 

Mayer, according to lots and lots of sources who have worked with her, is not concerned with things like "revenue" and "money." She's much more focused on "product" and "user-growth." 

Right now, Yahoo shareholders are happy to let her do that. That's because Yahoo shareholders are not shareholders because of Yahoo's core business or core products.

They are Yahoo shareholders because owning Yahoo is the only way to make a pre-IPO bet on Alibaba, a successful Chinese Internet company that Yahoo owns a big stake in. 

So Mayer is perfectly able to spend a billion dollars on Tumblr and allow Karp to keep running it relatively ad-free. This in turn, should keep Tumblr growing, since users hate ads.

Buying Tumblr helps Yahoo solve one of Yahoo's biggest problems: mobile.

Sometime in the next couple years, more people will be accessing the Internet through mobile devices than through PCs.

This trend is bad news for Yahoo, which has limited mobile reach and even more limited mobile usage.

(Its reach numbers get a boost because Yahoo gets credit for having a weather app installed by default on every new iPhone. This is despite the facts that the Weather Channel provides the data for the app, Apple built the app, and Yahoo sells no ads in the app.)

Tumblr, despite a rocky start in mobile, now has TONS of mobile users.

Check out this table from ComScore, which shows that Tumblr is, relatively speaking, about as strong as Facebook in mobile, and much stronger than Yahoo:

tumblr mobile

Complementary properties. Mayer made a lot of the fact that Tumblr and Yahoo actually fit “really beautifully together,” like South America and Africa, in her words. In addition to Yahoo skewing older and Tumblr skewing younger, “We are strong on sports, finance and news; Tumblr’s strong on architeture, travel and fashion. We need great tools for content publishing and creation. They have them. Tumblr prides itself as a home for brands. Yahoo is all about brands.”


Danielle Morrill analyzes Tumblr's revenue prospects:

The company started selling ads in May 2012 and revenue was reported at $13M for the year. Tumblr’s source of advertising revenue is the logged in user “dashboard” where sponsored posts are displayed in the sidebar via Tumblr Radar, while recommended posts are injected directly into the feed by Tumblr Spotlight..

make it rain money babe gif

Tumblr claims 120M+ daily impressions on Tumblr Radar, which equals 3.6B+ monthly impressions. Assuming $10 – 20 RPM (revenue per thousand impressions), which is within the normal range for premium brand advertising, the total revenue opportunity for Q1 was $108 – 216M. Based on this calculation, at an annual run rate of $15M ($3.75M quarterly revenue) Tumblr is selling 1-4% of its total monthly inventory. If you think about this operationally it sounds reasonable, as the company is just beginning to ramp its ad sales.

This analysis rests on the assumption that Tumblr advertising will command premium brand advertising prices. If not, RPMs in the $3 – $9 would be more realistic and you could reduce all the values in these calculations accordingly.

Tumblr may also be enticing early advertisers by selling inventory for a fraction of the price it eventually hopes to charge. At $1 RPM $3.75M in revenue would have paid for 30% of the available impressions, and in order to sell 100% of its inventory in Q1 Tumblr’s average RPM would have had to drop to $0.35. Compared to Reddit advertising, which offers $0.75 CPM, and sub-$1 rates for Tumblr CPMs sound plausible.

After much analysis, Danielle concludes:

In choosing to sell the company and hand Tumblr over to a professional management team with a track record for monetization through media properties, the board is implying that they do not feel putting more money into the company would enable the management team to achieve a better outcome in a reasonable amount of time. Investors who participated at the $800M valuation are probably welcoming the prospect of a $1.1B exit in cash – assuming some liquidation preferences were put in place they’ll get their customary 2x-3x late stage return, and the deal won’t negatively impact their respective fund’s overall IRR.

Selling now may also allow David Karp to remain in a leadership position at Yahoo! where he can continue his work to revolutionize advertising – maybe even leading Yahoo! to a more competitive position vs. Google for brand advertising and giving them a reason to drop the underperforming partnership with Microsoft in the long term. And if things don’t work out with Karp Yahoo! doesn’t seem to have any problem firing acquired founders who no longer fit with the company’s plans.

In the end Tumblr won’t see a bigger exit because they didn’t prove they could monetize their massive traffic before time (and money) ran out.

Ultimately this deal is about growing Yahoo in the future:

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