Yahoo’s challenges have been in the investor spotlight for months — now signs of turmoil are becoming visible at its Tumblr group.
Tumblr, the popular blogging service that Yahoo acquired for $1.1 billion in 2013, was supposed to be Yahoo’s ticket to growth with younger, mobile users.
But the storyline was officially dashed last month when Yahoo CEO Marissa Mayer acknowledged that the site had fallen short of its revenue goals and Yahoo took a $230 million write-down on the business.
Yahoo is now scrambling to get Tumblr back on track. But according to sources the key changes to Tumblr’s business now underway simply roll back a previous sales integration effort with Yahoo that they say caused the problems to begin with. The sudden flip-flop underscores the tumultuous situation across Yahoo and raises questions about the latest comeback plans.
Tumblr’s representative acknowledge that it’s now unwinding the sales team integrations that were put in place last year.
“Since the acquisition, Tumblr 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,” Tumblr’s representative told Business Insider.
A rushed plan
In January 2015, Mayer made the decision to combine Tumblr’s sales team with Yahoo’s broader sales organization.
It wasn’t a popular move. A lot of Tumblr people were upset because it contradicted an earlier promise Mayer had made in 2013, when the acquisition was announced — that she would keep Tumblr independent to not “screw up” the microblogging site’s own unique culture.
Some former Tumblr employees we spoke to said the plan was rushed and failed to create much synergy, slowing down the growth it was seeing.
“The whole process just pulled the rug out of all momentum,” one former Tumblr employee told us. “The decision was made without a full immersion plan.”
This person said Tumblr was seeing good traction during the two years of post-acquisition, until the change was made. The sales team had grown from about 18 people to almost 80 people, and its sales presence expanded to Europe and Asia as well.
But the idea of putting the two sales teams together created confusion and some power struggles, leading to many departures — one source said more than half the Tumblr sales team left following the move.
Lee Brown, who formerly led Tumblr’s sales team, soon left in February 2015, joining Buzzfeed as Chief Revenue Officer. There’s been a few temporary fill-ins for Brown’s former position, but no one has been officially named yet.
Also, because the two teams were going after fundamentally different advertisers, it made it difficult to work together. Tumblr mostly did native ads targeting a much younger audience, while Yahoo was after an older audience that responded to more traditional ads not seen on Tumblr.
“We were distributing Tumblr sponsored posts across Yahoo content in their native stream, but very few advertisers actually wanted it because it’s a different audience. And the content on Tumblr was very different from the content on Yahoo,” our source said.
The reversal of the plan comes against the backdrop of Tumblr’s failure to reach its $100 million revenue goal. Mayer had projected since 2014 that Tumblr would get to $100 million in annual revenue by 2015.
In the most recent earnings call, Mayer mentioned the sales integration as one reason for failing to reach that goal.
“In 2015, we experienced a slower ramp in monetization than we initially expected, and coupled with the sales realignment, the business did not deliver the $100 million revenue goal for the year,” Mayer said during the earnings call.
But Mayer stressed that Tumblr’s priority remains user growth, which is now at around 550 million in total, and that 80% of it is now on mobile, a key area of growth for her. She also named Tumblr as one of the three core platforms for Yahoo going forward, despite writing off $230 million of its value.
To be sure, Tumblr benefited from the Yahoo acquisition by getting access to its backend technology, including ad servers and targeting capabilities. It’s also helped Tumblr add autoplay video ads to its site. Although Tumblr missed its revenue projections, its sales is still continuing to grow.
But given the current state of Yahoo and recent write off in Tumblr’s value, the shift to recreate its own standalone sales team will raise a lot of question marks.
“The only reason for any skepticism is because this is a flip-flop, and either this plan is flawed or the prior one was. To be clear, it might be the right decision, but it’s just the context of which it’s occurring that doesn’t make it look good,” said Pivotal Research analyst Brian Wieser.