August 13, 2019

Tumblr Sells for Under $3 Million

The Wall Street Journal broke the story today that “Verizon to Sell Tumblr to Owner.” And Axios’ Dan Primack reported that Automattic was paying less than $3 million.

It’s amazing to think that Yahoo purchased Tumblr in 2013 for $1.1 billion. While Automattic is paying $3 million, it’s also reported to keep the 200+ employees that work at Tumblr, which will clearly costs tens of millions of dollars per year.

While I don’t quite understand what WordPress sees in this, I have two separate thoughts that I want to lean into.

Monetization remains a problem

To be honest, it had been years since I had thought about Tumblr, so I decided to hop back in to have a look. And after spending a bunch of time on the site, I noticed that there weren’t any ads.

But in doing research about why Tumblr was sold for such a small amount of money, I happened upon this Digiday article from a couple years ago that summed up the problems nicely. In the piece:

The main reason Tumblr never worked out is that the platform never figured out a way to turn its large user base into ad dollars. Tumblr suffered from lack of ad-product innovation, eclipsed by Instagram and then Snapchat; management collision with Yahoo; and multiple sales reorganizations in recent years. In its advertising business, Tumblr always held a somewhat ambivalent view, with founder and CEO Karp famously opposing advertising before the Yahoo acquisition.

“I don’t know if David ever gives a shit about advertising. He was forced to because Yahoo wanted to see return on its $1.1 billion investment,” said a Tumblr executive who left the company lately. “Nobody at Yahoo ever understood what they bought and what Tumblr was. That fundamental issue is the core of lots of problems. If you don’t understand something, how can you sell it?”

It’s kind of impossible to make money when the head of the the company doesn’t want to take the necessary steps. But Karp left the company at the end of 2017 and, one and a half years later, there’s still very little money coming in.

What’s the story? Therein lies the the problem. Selling media, in part, is about selling a story. And with Tumblr, there really is no story other than the belief that it was targeting millennial readers. Except, that audience had already hopped over to Instagram and Snapchat—although I don’t use any of them religiously, Instagram is by far a better experience.

But it’s more than that.

The type of targeting that would be required for a site of this scale to make any sort of money is really hard to achieve at this point. Think about it … Facebook has spent how many years building their huge database of identifiable information? I created an account on Tumblr today. All the company cares about is my age—I assume for compliance—and what my email address is.

If I am a marketer, how do I promote to the audience I care about? This explains why when Yahoo was trying to monetize the site, young people would see ads about retirement (true story). Without some sort of a progressive data capture, Tumblr is left with no real information to give marketers to excite them into advertiser.

To make matters worse, even if Tumblr could figure out how to start collecting that data, it might already be too late. With the rise of privacy policies like GDPR and CCPA, the hyper-targeting that has been made possible with Facebook is very slowly beginning to fall out of fashion.

But what’s rising is the desire for contextual advertising. I am an advertiser and I want to target a specific type of user that I believe exists at specific sites or publications. This goes back to what I asked before. What is Tumblr? Who is its audience? No one can accurately tell you that.

It’s disappointing because according to Similar Web, Tumblr gets 380 million visits a month. Add in the 6.52 pages/session and you’re looking at 2.47 billion pageviews per month. That’s a huge audience. Even if you could earn a $1.00 RPM on your ads, you’d still be looking at $2.4 million a month. That’d more than cover the team. But if Automattic introduced ads, would the audience rebel even more than they did when Tumblr shut off adult content? And even at $0.50 CPMs, are there enough advertisers willing to risk any semblance of a brand hit?

I just don’t see it.

One option could be to try to segment the site in some way. There are currently categories (I saw a business one, I think). Try to understand who the audiences are specific to those categories—their demos, HHI, etc.—so that you can then potentially go back to marketers and tell them a story.

But Automattic isn’t the company that I would expect to figure out how to sell that advertising. While used to have ads on its sites to support the business, now the focus is convincing users to get premium domains and hosting. It’s a fine model, but I struggle to see anyone converting Tumblr users into premium users.

It might have made more sense for PornHub to buy Tumblr than Automattic. Since the audience rebelled so much when Tumblr shut off adult content, give PornHub the keys to the site and let them bring back all of that adult content. At least PornHub is focused more on the advertising business, so they’d have some better luck building a business.

Alas, that ship has sailed…

Is Verizon regretting its media ambitions?

The real question I have is whether Verizon regrets getting into the media business at all. It paid $4.4 billion to buy AOL in 2015 and then picked up Yahoo for $4.48 billion exactly two years later.

It then merged the two brands into Oath (before renaming them to Verizon Media) and believed that this amalgamation of old Internet brands could gain power against the platforms. In December 2018, it announced a $4.6 billion write-off on the media division, which effectively wiped away all of its goodwill.

This article on Ars Technica sums it up nicely:

Broadband and cable TV companies have been trying to gain share in the advertising and TV programming markets, but Verizon has fallen behind its biggest competitors in that regard. AT&T bought Time Warner Inc. this year; Comcast failed in its attempt to purchase 21st Century Fox properties, but it still owns NBCUniversal.

Verizon’s media strategy has centered around Yahoo and AOL, but the former Web giants haven’t been able to compete effectively against Google and Facebook in the advertising market under Verizon’s ownership. Verizon also created an online video service, called Go90, but it announced Go90’s shutdown in June of this year.

And it’s not getting any better. Verizon reported Q2 2019 results on August 1st and the media business continues to struggle.

Total Verizon Media revenues in second-quarter 2019 were $1.8 billion, down 2.9 percent year over year. This is an improvement from first-quarter 2019, when total Verizon Media revenues were down 7.2 percent year over year. Gains in native and mobile advertising continue to be offset by declines in desktop advertising.

We have these huge brands—Yahoo still gets over 3.8 billion sessions a month—and the company that owns it doesn’t know what to do. Something to consider is that these acquisitions took place under previous management. Now Hans Vestberg is CEO of Verizon and his structure is set up to “optimize growth opportunities in 5G era.”

Where do these media brands fit into a 5G era? It’s certainly not just delivering straight news. Perhaps it’s video, but that field is incredibly competitive and I’d advise Verizon not to go out looking to buy anything there.

While I don’t think that Yahoo or AOL get sold, I wouldn’t be surprised if the smaller brands are purchased.

Take HuffPost. With 121 million monthly sessions and the political season about to really start picking up—and the potentially huge ad deals that come with that—I’d be surprised if someone doesn’t buy it. Axel Springer has demonstrated a strong ability to help acquired media brands achieve profitability—see Business Insider. Could this be another private equity take over?

Then there’s TechCrunch and Engadget. Although they’re smaller with close to 70 million sessions a month combined, there are other tech publishers that have much larger networks that could integrate these brands. IDG could be an interesting acquirer of this since it has so many tech brands. Since IDG has both B2B and B2C brands, both would fit. In particular, I see TechCrunch giving IDG a new target audience for its enterprise clients—startups.

Although both of these scenarios are pure speculation, I would be surprised if Verizon doesn’t decide to try and make some money on these brands. They’re smaller in scale and require strong, editorial teams to operate. Yahoo and AOL are platforms, so you can argue it makes more sense to own them because they do provide some scale. But the true media brands seem like trying to fit a square peg in a round hole.

It won’t make back what it has invested, but with Verizon CEO Vestberg focused on the 5G business, something is better than nothing.

Frankly, I just don’t think Verizon is structured to run media brands. And the longer they keep them around, the worse off it’s going to be for them.