Yahoo’s $1.1 billion acquisition of Tumblr is already being hailed as a brilliant move, securing a younger Internet demographic and a fertile field for native advertising, an innovative business model where content from brands lives side by side with users’ contributions.
In buying Tumblr, Yahoo CEO Marissa Mayer made a nod to the company’s past missteps in promising to “not screw it up.”
But in one crucial way, she already has.
That $1.1 billion is a lot of shareholder cash. And so Yahoo is promising investors that Tumblr will contribute to the bottom line next year. An understandable promise—but it’s the wrong strategy for Yahoo and for Tumblr.
A Different Strategy
Instead, Mayer should follow the lead of Amazon’s Jeff Bezos and Google’s Larry Page, who have shown that they’re willing to lose money for years on projects like Amazon Prime and YouTube, and build Tumblr into a lasting asset.
Yes, Yahoo has a big salesforce. And yes, Tumblr has a large audience. And yes, the idea of encouraging marketers to first create Tumblr sites and then pay to distribute their posts throughout Tumblr makes sense on paper.
But Tumblr still has a lot of growth ahead of it, particularly on mobile, where the landscape for ads is less well-formed.
Instead of trying to juice revenues in the short term, Mayer should be using all of Yahoo’s assets to help Tumblr grow—to make it far and away the most popular way to create content for the Web.
One way to do this is to move Yahoo’s media properties away from their clunky, homegrown content-management systems and onto Tumblr.
Another is to use all those salespeople to encourage their clients to start posting interesting material on Tumblr. Before they use Tumblr for advertising, marketers need to understand its quirky, distinctive culture. And the only way to do that is to dive in as participants.
Tumblr Needs Long-Term Goals, Not Short-Term Thinking
Mayer should declare that she’s not going to focus on monetizing Tumblr until it hits some big number—say, 500 million monthly users. At that point, marketers will be clamoring to get in, and Yahoo can dictate the terms of their access in a way that won’t turn those users off.
Look at how Facebook bought Instagram for $1 billion last year, then left it alone. From the time the deal was announced to its closure, Instagram’s user base tripled, and continues to grow. In short order, it surpassed Twitter in mobile users. No one’s worried about how much money Facebook will make off Instagram. Instead, investors are relieved that Facebook staved off a potential threat and kept it out of competitors’ hands.
What Tumblr doesn’t need is short-term pressure to deliver a lot of results to advertisers and to investors. As a startup, it had to start making money. As part of Yahoo, it has the luxury of long-term thinking. Or it should—if only Mayer hadn’t promised otherwise.
It’s great that Mayer has brought an urgency to Yahoo. The Tumblr deal happened in a short time frame—reportedly just six weeks. But now Mayer should be thinking about what Tumblr—and Yahoo—will look like in six years.
