A Tumblr Ad Exchange Is Inevitable, Say Industry Players

Yahoo needs to monetize, and buyers want pure exchanges

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Since acquiring Tumblr for $1.1 billion, Yahoo CEO Marissa Mayer has hinted at launching an ad exchange for her new social media property. But will increased advertising cause typical Tumblrs, digerati, and other variety of hipsters, to slam shut their MacBook Air before tossing their red plastic sunglasses at their ironic Kenny Rogers poster?

We're probably going to find out, per industry players, who say an ad exchange will be a big piece in how Yahoo-Tumblr ramps up revenue. They point to Tumblr's meager 2012 earnings ($13 million by most accounts, though at least one report says that figure should be much lower) as well as Facebook's resounding success with FBX in the last year and Twitter's alleged plans to follow suit.

"I think it almost seems inevitable," said Thomas Knight, senior product manager at X+1. "I think they could invent a native format for Tumblr and build the ad exchange around that. But I don't think it's going to be a private exchange in the sense of what we talk of today. The Facebook exchange sort of kept the standard Facebook ad units and had platforms built around it…I imagine Tumblr will—in addition to the standard IAB sizes—offer ads that are unique to its exchange."

Jeremy Steinberg, digital ads lead for The Weather Channel, said, "With Facebook and Twitter leading the way, you are going to see it happen more and more [with social platforms]. Because they did it first, it makes it easier for others to do it now. You are going to see it a lot more and from [sites] you don't expect it."

For fraud-weary marketers, part of the allure of site-specific ad exchanges—rather than ones with hundreds of sometimes-random URL destinations—may point to the protective nature of the so-called walled garden for the Facebooks, Twitters and Tumblrs of the world. Steinberg, who helps run TWC's self-contained WeatherFX exchange, said, "What we are seeing is a lot of marketers coming to us, saying, 'We only want to run on a handful of properties. We are done with buying across the entire Web.'"

The handful of players who spoke with Adweek about the potential of a Tumblr ad exchange all concurred that the social site will have to make its new ad units as "native" as possible. And they said the simple idea of launching a social-focused ads exchange is a virtual no-brainer for the New York-based social site.

"It's already a proven model," said Philip Smolin, svp of market solutions for Turn. "If you look at Facebook and Sponsored Stories and even search—some would consider SEM as a flavor of native—certainly the base model makes sense. There's nothing inherently preventing Tumblr and Yahoo from doing it. The big question to me comes down to scalability."

Smolin emphasized that brands won't pour money into an exchange that comes across as a fragmented ads experience for the consumer and marketer. "If that consistency can be bought at scale, then exchanges work," he explained. "Facebook can work so well because it's got that scale. It works for platforms that have the growth curve where they have enough volume to be able to have scale and a level of standardization. Native advertising means an endemic experience. But that also means that content and visual design and how they relate to the context around it…have to match up very well."

Yahoo and Tumblr must be cautious with the latter's coveted, hipsterish audience, so young folks don't leave in mass exodus, said Sveta Doucet, chief strategy officer at M&C Saatchi. She said "it seems some level of ad exchange integration is not a matter of when, as it does seems likely, but how it will all happen."

Zach Coelius, CEO of Triggit, suggested that Tumblr's six-year-old culture of iteration will be the guiding force behind an ads exchange—perhaps trumping Yahoo's influence on the matter. Tumblr CEO David Karp and his team recognize that traditional display doesn't work, Coelius, said, "and they are smartly innovating to come up with ads that mesh with their content to maximize value to both the advertiser and the publisher."

Tumblr last week debuted sponsored posts for its Web news feeds after recently implementing the same ads for mobile. The move came less than two weeks after Yahoo snatched up the site, which consists of 102 million bloggers that, per comScore, are between 18 and 34 years almost half the time.

Indeed, the Yahoo-Tumblr march towards more ads revenue seems to have already begun. At the same time, the companies are cagey about what's ahead. Yahoo declined comment about the possibility of an ad exchange, while a Tumblr rep ultimately sidestepped the question via email, saying the site is "focused on continuing to provide the best home for creative brand advertising."

Although it's unclear when a Tumblr ad exchange might come to light, Knight from X+1 said the companies "have good reason to slow play and test out the ad units they'd sell in the exchange, while selling them direct to see what the reaction of the user base is first—before they build an entire structure around selling that ad unit at a massive scale."

He added, "But the cool thing is, once it's built, the demand side scales up in a couple of months."

Facebook would certainly agree.

@Chris_Heine Christopher Heine is a New York-based editor and writer.