Yahoo! Inc. has finally caved in and decided to grant Tumblr some degree of autonomy by splitting off its sales team into a separate outfit. Tumblr, a hugely popular blogging service that Yahoo acquired for $1.1bn or about $3 per user out of the 300 million monthly users at that time, has run into headwinds, with revenues lagging estimates.
The acquisition was expected to drive user base on Yahoo sites by 50 percent to one billion users. However, Yahoo announced that it had reached the milestone in October 2014, about 18 months later. Even that achievement was met with skepticism by industry analysts.
In January, Yahoo Chief Executive Officer Marissa Mayer admitted that the site didn’t bring in the expected $100m in revenue for 2015, forcing Yahoo to post a $230m devaluation of its business.
“In 2015, we experienced a slower ramp in monetization than we initially expected, and coupled with the sales realignment, the business didn’t deliver that $100 million revenue goal for the year,” Ms. Mayer said during this month’s earnings call.
However, Mayer and Yahoo Co are scrambling to reverse Tumblr’s dwindling fortunes, with the decision to separate Tumblr’s marketing team from Yahoo’s being the first step.
Yahoo had earlier reneged on a pre-buyout agreement that provided that Yahoo wouldn’t integrate Tumblr’s staff with its own in order to preserve the microblogging platform’s unique culture.
Going by the alarming revenue shortfalls, it is understandable why Mayer’s decision to merge Tumblr and Yahoo’s marketing teams didn’t go down well with Tumblr staff. The merger was rushed and failed to create the much-needed synergy, thus slowing down Tumblr’s growth momentum.
In the words of a former Tumblr employee; “The whole process just pulled the rug out of all momentum. The decision was made without a full immersion plan.”
The rushed merger of the two sales teams resulted in power struggles and created confusion, leading to the departure of over half of Tumblr’s sales team.
Moreover, the two teams targeted different categories of advertisers, making it difficult to agree on anything. While Tumblr preferred native ads that were targeted at a much youthful audience, Yahoo did traditional ads that were targeted at an older audience.
Smart Corporate Move for Yahoo
Mayer’s decision to unwind the sales staff integration is therefore a smart corporate move.
Contacted for comments on the new internal move, a Tumblr spokesperson said: “The company has introduced a number of innovative ad products to maximize value for our advertisers and best meet their needs. To further support these efforts moving forward, we have returned to a dedicated direct sales team.”
Mayer has listed Tumblr as one of three core platforms that will drive Yahoo’s growth in the immediate future. While Tumblr’s revenues may have missed estimates, they are still growing, a reason why a lot of resources and focus should be committed to ensure it reaches its full potential.
To illustrate Tumblr’s growth have grown to 550 million, up from 300 million at the time of acquisition. 80 percent of the users are on mobile devices, a key growth area for Yahoo.