Yahoo chief Marissa Mayer famously promised "not to screw up" Tumblr following its $1bn purchase in 2013, but two years later a loss of $500m in its brand value suggests she’s done just that.
The beleaguered online business acknowledged its social network is now worth around a third of the $1.1bn that it originally paid for. Some $482m has been knocked off the site's value in its latest quarter, off the back of the $230m it wrote off in the previous quarter.
Much of the downgrade stems from Yahoo’s failure to meet an ambitious $100m sales goal for Tumblr this year, which it was convinced it could hit following a growing user base and early buzz around its sponsored advertising.
Indeed, Nescafe was one brand to hail Tumblr’s potential as a marketing platform last September, while former Disney executive Stephanie Dolgins was brought in just months earlier as its chief marketing officer. There was momentum behind Tumblr 12 months ago and the future looked positive. Fast forward to now and its altogether different prospect, one that’s clearly not played out in the way Mayer had envisaged.
Mayer puts this down to simply a supply vs demand issue: "because it's [Tumblr inventory] is growing so quickly, it’s outpacing demand and its causing this monetisation shortfall," the executive explained on the company’s quarterly earnings call yesterday evening (18 July). What this means is there’s surplus of Tumblr media inventory out there that the business is struggling to shift. However, this isn’t because advertisers don’t want to buy them, according to Mayer, who said "we’re seeing twice as many Tumblr users engaging with ads compared to last year. Rather she feels the lack of demand is due to advertisers not wanting pay as much for them.
"We think that the ad load in Tumblr is appropriate. It’s really about bringing the demand to bear there," she added.
The F word
The solution to the woeful demand could be Facebook. If it is to be believed that Tumblr is only selling around 10 to 15 per cent of its available ad inventory then the world’s largest social network could be the best way to pick up the slack on the unsold media.
Toward the end of the second quarter Yahoo began selling ads through Facebook’s Audience Network, confirmed Mayer after reports earlier in the year revealed the unlikely union. Part of this will see more of Yahoo’s native Gemini ads pushed on to Tumblr alongside banner ads that "may be at lower prices because there’s not as much demand to keep up with the supply," said Mayer. The arrangement will tag Tumblr on to the normal ad buys on the network, which is effectively a way for Facebook to offload the ads it already sells by sending them elsewhere, all the while taking 30 per cent of the revenue generated.
It’s an agreement that speaks volumes about how distorted Tumblr’s strategy has become over the last 12 months.
"Though Yahoo has a good eye for products and services, their heritage of monetisation is less illustrious," opined Tobit Michael, head of media at iCrossing.
"What’s more, the young hipster Tumblr audience is difficult to advertise to, especially on mobile. Facebook has the capabilities, ad functionality and data to reach this audience much more effectively than Yahoo currently can, leaning on Facebook is likely to be their best bet to monetise this audience.
"This move is clearly a financial decision – 70 per cent of something is better than 100 per cent of nothing after all."
Seemingly aware of putting all its eggs in one F-shaped basket, Yahoo is also increasing the number of native ads on the micro-blogging platform and bringing in "what’s known as our large rectangle ads" – in other words, standard banner ads.
A deal with Facebook’s ad network is geared to drive revenue rather than build an advertising proposition, a move that makes sense given final bids for Yahoo’s core business are expected. Only time will tell what this means for Tumblr, which Mayer and her team have struggled to monetise an audience as large as 550 million monthly active users as of last year.
"It says a lot about these big social platforms like Tumblr and Snapchat that they can’t survive forever if they don’t think about revenue," said Will Frappell, head of partnerships and emerging media, for Essence's EMEA business.
"I don’t think Yahoo was quick enough to monetise the big audience on Tumblr it paid for. I think it were so worried about pushing away users away from Tumblr with ads that it just didn’t move quick enough…the thing is you can run these big campaigns which look nice but they don’t happen that often for brands whereas if you have a steady stream of ads coming in then you have a baseline of revenue coming in and you can then top up with bigger brand campaigns."
But, what Yahoo needs is more brands like Nescafe willing to take a bigger bet on the platform. Unfortunately, according to a survey in 2013, only 31 of the top 100 brands in the US were on Tumblr showing the clear lack of interest, or perhaps understanding, of what it potentially has to offer.
Nestle, by its own admission, took a bit of a punt when it consolidated its global portfolio of website for the Nescafe brand onto Tumblr. The reason, it said, was to foster better relationships with younger consumers and open it to more user-generated content, something the traditional website doesn’t allow for.
Marketing director Michael Chrisment recently updated The Drum on its progress, saying it’s seen a 30 per cent increase in average traffic per month and an additional $200,000 in online sales.
Keeping Tumblr weird?
Facebook has a newsfeed, Twitter has a timeline and Snapchat has stories, but for most brands Tumblr is still unchartered territory. Starting life as a blogging tool, it’s build around niche communities and subcultures, each with their own vernacular and rules. According to Leo Burnett’s futures director Chris Waltz, this means that it requires a large investment of time and resources to create dedicated content that just isn’t in line with a brand’s traditional images.
"When marketing budgets get tight, it gets very hard to justify spending money on Tumblr when campaigns rarely get the earned media traction of newer social networks, especially for non-US brands or global campaigns," he said.
In short, Waltz argued that "Tumblr has never taken off with brands because it’s too ‘weird’ for most marketers."
Another reason advertisers aren’t doubling down on Tumblr ad spend is because, unfortunately, the platform has caught the stench of its buyer. It’s no secret that Yahoo has found itself in trouble of late, and Mayer’s recent reign has been tempered with talks her Yahoo’s clouded future.
Jon Buckley, head of digital and social at Cheil London said: "The failure of Tumblr is indicative of a wider malaise at Yahoo – a company that seems to have some sort of reverse Midas Touch when it comes to acquisitions."
"It may be a final roll of the dice for Yahoo, which has become distracted by talk of its own acquisition by another company," he added, saying that Tumblr's ad sales model "failed because it failed to find the demand for the quantity of advertising it had available."
Speaking with The Drum at last month’s Cannes Lions event in France, Yahoo's chief revenue officer Lisa Utzschneider, said the company’s message to the market was: "It’s just business as usual..." in light of takeover rumours. The most recent earnings report will, however, leave investors jittery as Mayer's acquisition strategy is once again put under the spotlight.