Marissa Mayer views success as every Internet user in the world spending some time every day engaging with Yahoo properties. "We want to be product that people use on a daily basis, at least some part of it," the Yahoo CEO says.
Tumblr will be operated as a separate business, like a child of Yahoo just out of college. As described in Yahoo's press release, "Per the agreement and our promise not to screw it up, Tumblr will be independently operated as a separate business. David Karp will remain CEO. The product, service and brand will continue to be defined and developed separately with the same Tumblr irreverence, wit, and commitment to empower creators."
Bolting Tumblr onto Yahoo, and keeping it as a separate brand as Google has done with YouTube, might work to keep Tumblr's loyal users, already suspicious about the new overlord, from bolting. But Yahoo still needs to find a way bring them more deeply into the fold.
Ultimately, Tumblr needs to get woven into Yahoo's fabric. For a billion dollars, Tumblr needs to accelerate Yahoo's effort to become more pervasive, mobile, social, personalized and profitable, as well as appealing to younger demographics and faster-growing. Apparently, Yahoo's board is $1.1 billion sure that Mayer has chosen the right spark to help revive the company. Let's examine more closely how Tumblr might fit into Yahoo's strategic vision.
Yahoo already reaches more than 700 million unique visitors per month, but the bulk of them, and the revenue from search and display ads, come from the Americas. Getting the next billion users is proving to be a challenge.
Tumblr says that it has 300 million unique vistors per month and 120,000 signups daily. In its press release, Yahoo said that the "combination of Tumblr+Yahoo! is expected to grow Yahoo!'s audience by 50 percent to more than a billion monthly visitors, and to grow traffic by approximately 20 percent." Mayer said with Tumblr, Yahoo has well over a billion users, given there is little overlap between the two sites.
"The exciting part for Yahoo is as we pull the Tumblr content into the Yahoo news feed and media experience, it will cause Yahoo properties to be that much more interesting and richer, and cause more people to come to Yahoo and increase engagement on our core site," Mayer said.
Tumblr users spend about 24 billion minutes per month on the site. According to ComScore, Tumblr accounts for about 5 percent of time spent on social networks in the U.S., but it's not likely to translate into more time spent on other Yahoo properties in the short term. Nor will Tumblr, which supports 12 languages to date, do much to expand Yahoo's global footprint at this juncture. Yahoo will have to focus on increasing Tumblr's time-spent metric compared to Facebook's, drive more usage of other Yahoo properties and expand its reach outside the Americas.
During her tenure as CEO, Mayer has been emphatic that the Yahoo needs to be a "mobile first" company. She says that Yahoo is "uniquely suited" for the mobile world, and has apps for all the main activities that are essential for mobile users -- e-mail, weather, news, stock quotes, sports scores, videos and photos.
In addition, Yahoo disclosed that it has grown its base of mobile users from 250 million in 2012 to 300 million at the end of the first quarter of 2013.
Derek Gottfrid, Tumblr's vice president, recently disclosed that the company's mobile usage has quadrupled over the past six months and now is nearly equal to the number of people who access the site via computers.
"Tumblr is ahead of Yahoo in the way it works on mobile. We have been catching up in that space," Mayer said.
Tumblr has a younger demographic that is quickly becoming a more mobile audience, and could be seduced to use more Yahoo apps if Mayer makes good on her initiative to make them more "delightful" and "inspiring" to users.
Yahoo has an age problem. The site has been around since the dawn of the Web, but failed to keep up with the competition in areas such as search, social and user-generated content, like Google's YouTube. Its audience skews older, which makes Quantcast's estimate that more than 50 percent of Tumblr users are in the 18-to-34 demographic, a positive for Yahoo.
Yahoo missed the social revolution, but has been friendly with Facebook and Twitter, integrating their services in various ways. For example, Twitter is now feeding tweets, filtered based on user preferences and interests, into the Yahoo homepage news feed on the web and mobile devices.
Tumblr gets Yahoo more directly into the social game, with a network producing about 75 million blog posts per day, by Tumblr's count, that could be woven into Yahoo's other services. Mayer said that personalized Yahoo homepages and other services will be tailored with Tumblr content derived from social signals, and searches on Yahoo will display relevant results from Tumblr.
"The core of Yahoo's business is to personalize content," Mayer has said. The homepage, for example, has tens of thousands of versions, based on what Yahoo knows about its visitors. More personalized pages provide more data for precision targeting of ads, leading to higher rates and more revenue.
Tumblr brings a lot of new data to Yahoo that it can use, with permission, to create more personalized experiences and targeted ads across the site. On a daily basis, Tumblr has nearly 60 million photo activities, 7.7 million text activities, 700,000 video activities and 560,000 chat activities, according to Gnip, which has access to Tumblr's real-time stream of blog posts and reblogs.
Tumblr content will be integrated into Yahoo's pages and media experience, Mayer said, and take advantage of Yahoo's personalization infrastructure. Tumblr posts on fashion, for example, could be fed into a Yahoo user's personalized news feed if it fits their profile. Mayer noted that combination Tumblr and Yahoo will yield some content benefits. For example, Yahoo is strong in sports, news and finance, and Tumblr is strong in categories such as food, fashion, art, and architecture.
Faster revenue growth
In 2012, Tumblr generated $13 million in revenue, but the company says it could do around $100 million this year, mostly from "native" ads, sponsored posts that are part of a user's content stream. However, Quantcast estimates that 66 percent of Tumblr users make less than $50,000. That's not unexpected given the large contingent of 18- to 34-year-olds on Tumblr, but it could be less compelling for advertisers with big budget items, such as luxury cars.
During a call with analysts following the announcement of the acquisition, Mayer said that Yahoo will find innovative ways to integrate ads across Yahoo and Tumblr. "On Tumblr there are number of places we can monetize and are additive to the user experience," she said. In addition, Yahoo could provide ads for Tumblr bloggers, with their permission.
She noted that Tumblr has been like Facebook in its early days (as portrayed in the movie, "The Social Network"), not focusing on ads because it doesn't know exactly what it is. "Tumblr is now at a point where it knows what it is and how to monetize in tasteful ways. A lot of marketers are eager to participate on the Tumblr platform. We will get incremental spend as opposed to repartitioning of existing spend."
Mayer addressed the issue that some advertisers might have with some of Tumblr's more racy content. "The richness and breath of Tumblr, even if not brand safe, is what is really exciting. One of ways to measure our growth story is around traffic and users, and this does a lot for this. We need to have good tools for targeting to deal with any brand safety issues," she said.
Mayer said the 50 billion posts on Tumblr, which could be seamlessly integrated into Yahoo's site and web search, and boost traffic and search revenue.
Tumblr may add a few percentage points in quarterly revenue in the next year, and potentially a few drops of profit, but not enough to move the needle unless the service continues its user growth rate and increasing rate of revenue growth. The real profit will come as Tumblr scales and improves its ad targeting, which Yahoo's technology can help nurture.
Mayer isn't rebuilding the company from the ground up, but she is infusing it with a new spirit, born out of the Google way, which should appeal to Tumblr's 175 employees. We'll know after the honeymoon period and the stock lockout expirations, whether the union turns out to be Mayer's triumph or folly. But it's clear that Tumblr fits into Mayer's vision of a younger, hipper, faster-moving and more mobile Yahoo.
This story has been updated to include information from the formal announcement from Yahoo and conference call that it is acquiring Tumblr.