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Mayer confirms Yahoo’s selling Tumblr ads through Facebook’s ad net
Yahoo has turned to Facebook's ad network and the portal's own native ads and traditional banners to try to bolster Tumblr's struggling ad sales.
Tumblr is in a bad way. Three years after Yahoo bought the company in a $1.1 billion deal, the social network is having such a hard time getting brands to buy its ads that it’s started to lean on its parent company’s traditional banner ads and one of its would-be rivals’ ad networks to help it make money.
“Towards the end of” the second quarter of 2016, Yahoo began selling Tumblr ads through Facebook’s Audience Network ad network, Yahoo CEO Marissa Mayer said during the company’s earnings call on Monday. That appears to have been the first time Yahoo has confirmed the ad deal between Facebook and Tumblr, a deal that The Information reported in March 2016 was under consideration as Tumblr struggled to sell more than 10 percent to 15 percent of its available ad slots.
“Our supply [on Tumblr], because it’s growing so quickly, is outpacing demand and is causing this monetization shortfall,” Mayer said on Monday.
Mayer made it seem like Tumblr’s problem isn’t that advertisers aren’t willing to buy its ads; they just don’t want to pay all that much for them. “We think that the ad load in Tumblr is appropriate. It’s really about bringing the demand to bear there,” she said.
But Yahoo isn’t so much bringing in demand to Tumblr as piggybacking on demand elsewhere and treating Tumblr like a commodity. Tumblr is increasingly becoming a place to put ads that could have run almost anywhere else.
Facebook’s ad network, at its core, is a way for Facebook to offload the ads it already sells by sending them elsewhere. That way, Facebook is able to hang onto its advertisers’ dollars without clogging its audience’s news feeds.
Facebook doesn’t offer a way for advertisers to buy its ad network ads exclusively, so these ads are simply extensions of their normal Facebook ad buys. The only difference is that they appear outside of Facebook. They still run in front of Facebook’s audience and, more importantly to Yahoo, are sold at Facebook rates. That could explain why Yahoo would be willing to take Facebook’s ads, which require Yahoo to pay Facebook 30 percent of the resulting revenue and give up its connection to those advertisers (Facebook doesn’t tell publishers in its ad network which brands end up buying ads on their properties).
Yahoo isn’t only outsourcing some of Tumblr’s ad sales to Facebook to fill its coffers. The portal is also syndicating its own ads on Tumblr. In particular, Yahoo is upping the number of its so-called “native” Gemini ads on Tumblr and has also started slotting some standard banner ads — “what’s known as our large rectangle ads,” said Mayer — on the social network.
It wasn’t supposed to be this way. Tumblr’s ad business wasn’t supposed to be supported by traditional banners, deconstructed search ads disguised to double as mobile display ads and another social network’s syndicated ads. But that’s how it is.
Maybe Tumblr’s struggles aren’t such a surprise. For starters, it would be hard for the social network not to catch the stench of its parent company, which has been struggling for years and is in the midst of selling itself (Yahoo’s even scheduled meetings with ad buyers, not to sell them ads but simply the idea that the company is okay). Then there’s the fact that Tumblr had already missed last year’s $100 million revenue goal, and its future revenue prospects have gotten so grim that Yahoo continues to devalue the company at a time when Yahoo really can’t afford to look even less valuable.
Yahoo marked down Tumblr’s value by $482 million on Monday. That’s in addition to last year’s $230-million writedown. Put another way: When Yahoo bought Tumblr, it thought Tumblr was worth $990 million (the price Yahoo paid after subtracting $115 million in liabilities from the $1.1 billion price tag). Three years later, Yahoo says Tumblr is worth $278 million, and its outlook is grim. In its earnings release, Yahoo explained that it cut Tumblr’s value because of “decreases in our projected Tumblr operating results and estimated future cash flows.”