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Yahoo: Expect Ads On Tumblr To Ramp Up Significantly In 2014

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After announcing its deal to acquire Tumblr for $1.1 billion, mostly in cash, Yahoo today started to lay out some of the details for how it intends to make use of the property while trying to stick to its promise “not to screw it up.” Expect more advertising by next year as well as more Tumblr content on Yahoo properties, but more of a cautious step as to how Yahoo will deal with some of Tumblr’s more NSFW content.

Here are some of the more interesting details revealed in the call:

What are Tumblr ads going to look like? Tumblr apparently made only $13 million in revenues last year but CEO David Karp apparently thinks the site is “ready” to make more now that it understands its users, according to Yahoo CEO Marissa Mayer. But she also noted that they will be working from a challenged position, not just because of user resistance but because Karp himself has been “skeptical” about online ads.

In the conference call, Mayer made an early reference to how Tumblr would be able to make good use of Yahoo’s advertising technology, in ways that fit Tumblr’s so-far successful, image-based, quick-blogging, youth-oriented format — what she called “native advertising formats.”

As one example, she pointed to an ad format that Yahoo launched at the end of April, in-stream ads that it runs on its news pages. “On Tumblr we feel we can monetize in ways that are meaningful and add to user experience,” she said. She cited the Tumblr dashboard, or as she called it, the inbox for the blogs you follow. “Today Tumblr already does some ads in that feed. We would like to look at that and understand how to introduce more ads where the ads fit the expectations and follow that form and function.” She also noted that Yahoo may possibly work with bloggers to provide ads that will be run with their permission.

On top of this, expect to see more search ads: there are also plans to integrate Yahoo’s search functionality into the site as well. “We think there is a complelling search story,” said Mayer. “Their body is 50b posts and 5 billion posts of original content so search is already vast. We see an opportunity to integrate with search and provide that. That’s one area we are excited by the acquisition.”

Throughout this, a focus on trying to be Tumblr-centric about whatever Yahoo tries to do there. “It’s not a choice between creativity and monetization,” insisted Mayer.

So when are those ads coming? CFO Ken Goldman said that ad revenues from Tumblr will be “modest” this year — the acquisition is not expected to close until the second of of 2013 — but that they will “ramp up” in 2014 “and beyond.” “We do think those revenues will start monetizing materially [and] will contribute to revevenues in 2014 and beyond,” he said on the call, “not just standalone for Tumblr but also incrementally, helping Yahoo to growth.”

Porn? The NSFW, notorious part of Tumblr was never referred to by name, but an analyst did ask about what Yahoo, while courting mainstream brands to market to that attractive Tumblr audience, would do about content that is not “brand safe”. “The richness and breadth of the content… is what makes it more exciting,” enthused Mayer. “In terms of addressing concerns around brand safety we need to have good tools for retargeting.” [Another acquisition, methinks? In any case, no outright announcement that Yahoo intends to get rid of all those sites that Tumblr has more or less accepted into the fold.]

Mayer continued: “Tumblr is now at the point that they do know what it is and what makes sense to monetize in way that is tasteful.” She also mentioned due diligence but also something else, effectively implying that Yahoo will figure out a way of getting around the NSFW content and serving ads where they want them to go, because that’s what the advertisers want: “There are a lot of marketers eager to participate in Tumblr platform and the demographics,” she said.

What does the $1.1 billion “substantially in cash” mean? Goldman noted that it’s effectively an all-cash deal, save for some shares in Yahoo for David Karp. He also noted that Yahoo still has “ample cash” for more acquisitions and investments, to the tune of about $6.2 billion. These will not likely be along the lines of Tumblr in terms of size. “This is an exceptional company and team,” she said of Tumblr. At 300 million monthly unique users, Yahoo is paying about $3.67 per user for the acquisition.

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.”

Tumblr comes to Yahoo. While a lot of the expectation so far has been about how Yahoo may mess up or spiff up or monetize up Tumblr, another theme that emerged during the call was the idea of Tumblr content going out to Yahoo properties — a way of attracting users to Yahoo that may not have gone there before.

“Our strategy is to let Tumblr be Tumblr,” said Mayer. “There are some who will always prefer Tumblr and will never come to Yahoo. [But] as we pull Tumblr content into our news feed and media experiences it will cause them to become that much more interesting and richer and will cause more to come to Yahoo. I imagine engagement will improve as we incorporate that content.”

Flickr. There is a separate news conference today that will likely concentrate on updates to Flickr, but today Mayer appeared to douse out speculation that it will be a move to begin integrating its online photo site with Tumblr in any way: “In terms of how the content of Tumblr evolves it depends on the creators,” Mayer said in answer to a question of what this acquisition will mean for Flickr. “It’s something that we will turn our attention to in the future. It will provide great storage, but we will see how those two cousins should relate to each other.

Image: Tumblr (where else)

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