Tumblr's down, but not out

The Yahoo-owned social platform has been struggling to grow its user base and revenue

When Yahoo bought Tumblr for $1 billion in cash in 2013, the company memorably promised not to "screw it up." Some three years later, from a financial standpoint, Tumblr is pretty screwed up. 

Though there had been murmurs that the acquisition wasn’t going well, Yahoo’s quarterly earnings report on Feb. 2 provided a truckload of new fodder for naysayers. In a call with analysts, CEO Marissa Mayer said Yahoo was writing down the value of Tumblr by $230 million. Tumblr also fell short of its goal of $100 million in revenues in 2015.  

The performance was even more disappointing when compared to Instagram, a property that Facebook bought for around the same price in 2012. Facebook doesn’t break out Instagram’s revenues, but eMarketer estimates that Instagram will post $1.48 billion in revenues for its parent company this year and $2.81 billion in 2017.

The comparison is apt. Instagram has a young-skewing audience and waded into advertising slowly, taking a curated boutique approach, at least at first. Similarly, Tumblr also skews young and sought to take a different tack with advertising. Tumblr Founder David Karp famously said in 2010 that advertising "really turns our stomachs." Two years later, he clarified that he was actually talking about direct-response web advertising. By contrast, Tumblr ads would be designed "to make you feel something for the brand" and as a forum for creative campaigns aimed at a specialized audience. 

Ad execs and analysts who spoke with Campaign say that it wasn’t the quality of the ads that has hurt Tumblr’s business as much as the platform’s lack of reach, targeting and choice of ad units. Compared to other teen-friendly platforms like Snapchat and Instagram, Tumblr also requires a commitment to pumping out a firehose of content, which adds to the overall cost. Finally, the huge amount of porn on Tumblr is worrying for advertisers wary of being associated with such content. That said, Tumblr’s continued popularity with teens augurs well for the platform, and advertisers say no one should count Tumblr out.

"It still feels like an incredibly ripe platform," says Laura Tierney, social media director at McKinney. Tierney says however that if brands don’t commit to frequent, high-quality posts on the platform "then it’s easy to sink on Tumblr." 

Tumblr responds 
In a statement released to Campaign, Tumblr acknowledged its setbacks: "While we experienced a slower ramp in monetization than we initially expected, we've seen continued growth across all areas of the business, including revenue, users and engagement."

Tumblr claims it now reaches 600 million people, which is double the number it reached at the time of the Yahoo acquisition. More than 80% of users access Tumblr via mobile devices as well and daily active users have grown 34% year over year. 

In addition, Tumblr has returned to a Tumblr-dedicated sales team instead of a Yahoo-led one, though the Tumblr sales team is also pooled with Polyvore, another Yahoo-owned social shopping site. 

Tumblr says that is also countering the slow start with "innovative new ad products," including Tumblr Sponsored Posts, Sponsored Video and Sponsored Day. Despite the soft numbers, some advertisers still swear by the platform. "We’ve only had a positive experience with Tumblr," Doug Neil, evp of digital marketing for Universal Pictures, told Campaign.  "We like the opportunity to access our target audience organically within their environment."

Critics remain
Countering Tumblr’s spin, critics predict the platform is on the decline. The most vocal critic is eMarketer, which released a report in mid-February predicting that 2016 will be the last year that Tumblr will grow in double digits. By 2020, eMarketer estimates, Tumblr will have only added 6.2 million new U.S. users versus 26.9 million for Instagram and 14.6 million for Facebook. 

Oscar Orozco, an eMarketer analyst, told Campaign that he believes Tumblr is basically a blogging platform and not really a social media network. "While Tumblr is a ‘social’ media platform, it has not developed the conversational nature that many other social media platforms have developed," Orozco says. "This conversational nature of many social networks has led them into a more mobile-relevant state, and yet this transformation has not occurred with Tumblr to the same degree." 

On the business side, Tumblr has also been way behind. While Twitter has a smaller user base and growth recently flattened out, its revenues grew 48% in the fourth quarter to $710 million. Orozco says that’s a function of Tumblr’s lack of execution on advertising initiatives. "Twitter is a much more mature platform, that when compared to Tumblr, has had more ample time to figure out what content they want to provide and how to monetize it," he says. Finally, while Yahoo’s affiliation hasn’t scared off teen users, "Yahoo has done a bad job integrating and promoting Tumblr though its other services," he says.

Jason Stein, CEO of digital agency Laundry Service, says that he doesn’t see a lot of demand for Tumblr advertising. "There’s a lack of scale on the platform compared to all the other social platforms, especially in their mobile app," he says of Tumblr. "Links are always being passed around, but it’s not really a mobile experience." Among other issues, Stein says that Tumblr doesn’t have the kind of granular targeting that other social networks offer, the choice of ad units is slim, and "ad performance just didn’t stack up." 

Nathan Carver, CTO at ad tech firm Accordant Media echoes Stein’s concerns. "It simply doesn't have the reach — we are focusing on the top three social platforms, Facebook, Twitter, Instagram, to find users," he says. Another issue is porn. As of 2013, some 11.4% of Tumblr’s sites were "adult fare." The prevalence of porn on the network got it briefly booted from Indonesia this month. Carver says advertisers are aware of the content. "The NSFW controversy is real," he says. "The latest news with Indonesia is the type of embarrassment no advertiser wants to be a part of." 

McKinney’s Tierney is a fan of Tumblr, but says to really thrive on the platform brands need a steady stream of quality content, which can get expensive. For instance, Nike Women’s Tumblr presence is great, Tierney says, but only because the brand is diligent about loading it up with high-quality GIFs and photos. "Their content is exceptional and they’re pushing it out on a daily basis," she says. "It feels organic to the brand and the platform." Similarly, Taco Bell stuffs its Tumblr with goofy GIFs that are refreshed often. 

"If you’re pushing out content like that on a daily basis, you need to have some very good resources," she says.

Tumblr comeback?
Despite the demands the platform places on advertisers, Tierney believes that Tumblr is still a great platform for brands that want to reach a young audience.

Orozco says Tumblr has been mishandled by Yahoo, but there’s still time for Tumblr to reverse course. "There remain opportunities to better communicate the benefits of Tumblr to marketers before the platform can reach its potential," he says, adding that creating new ad products and improving Tumblr’s mobile experience will help. 

Stein says to differentiate itself, Tumblr should double down on GIFs. Until recently, Tumblr was synonymous with GIFs, but now that you can put them in your Facebook News Feed, Tumblr is at risk of losing that association. "If they were to have the best GIF feed and offered ‘the best GIFs for you’ then that would be a good investment — that and the best ad tech." 

Another element in Tumblr’s favor is that adults still haven’t really penetrated it. While more oldsters flock to Instagram, Tumblr is still pretty free of parent types.

"I think the biggest thing that scares teens away is when parents are on the platform," Tierney says. "I don’t see that happening with Tumblr."

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