Of course, as Om and others have already mentioned, there’s no guarantee this deal will actually be consummated: it could fall apart on valuation, as so many deals do — or Facebook could swoop in with a much higher offer and snatch Tumblr out of Yahoo’s clutches, the same way it did when it stole Instagram away from Twitter last year for close to $1 billion.

It makes Yahoo look desperate — because it is

Even if the deal does get done, one of the risks for Mayer and Yahoo is that the company could look desperate by paying more than $1 billion for a site that had revenues of less than $15 million last year (although CEO David Karp has said that figure should hit $100 million this year). That’s an almost bubble-like multiple for a company, and there will likely be plenty of criticism from investors who believe that $1 billion could be better spent elsewhere — in other words, on businesses that would make Yahoo a better return.

But the painful fact is that Yahoo doesn’t just look desperate — in many ways it is desperate. Mayer has made some changes since she took over the ailing former web portal, including the acquisition of Summly and a number of other mobile-focused startups and services, but the company still needs to make some aggressive moves if it is going to jump-start any growth at all. And since Yahoo has about $4 billion in cash on hand, it can arguably afford to make a big bet.

Yahoo buying Tumblr makes sense. Tumblr is only big, cool, newish social platform that Yahoo can afford.—
Henry Blodget (@hblodget) May 17, 2013

For Yahoo, the addition of Tumblr would do a number of things: because of the size and profile of the deal, it would make a major statement about Mayer’s intention to do whatever it takes to revitalize the company, and it would also send a signal to Facebook and Google — and even Apple — that Yahoo is a potential force to be reckoned with when it comes to potential acquisitions. Is doing that worth $1 billion? That’s for Yahoo’s investors and board of directors to decide.

Just as important, it would inject some much-needed life and energy into the somewhat stale lineup of content that the company currently relies on, which caters more to the over-50 set than it does to anyone in the much-desired 18 to 25 demographic. More than any other network, Tumblr is the platform of choice for media-obsessed teens and 20-somethings, who spend massive amounts of time sharing photos and videos and animated GIFs on the site — an engine of potential value that Yahoo desperately needs.

Tumblr gets a massive exit

This doesn’t come without its own risks, of course: As a number of observers have noted, Tumblr’s content contains a large quantity of not only mature or arguably offensive content but outright pornography, which many argue is the source of its massive traffic numbers. How Yahoo (or Facebook for that matter) would deal with this kind of content remains to be seen.

3 q's for Yahoo: 1) Can you convert Tumblr users to Yahoo products? 2) Can you monetize Tumblr PVs? 3) What to do w/ all that Tumblr porn?—
Mark Zohar (@markzohar) May 18, 2013

For Tumblr, meanwhile, being acquired would solve a number of problems — the main one being that the company has gone well beyond the “we’re a startup so we don’t really have to make money” stage, and is facing increasing pressure from the investors who have given CEO David Karp more than $125 million in venture financing, an investment that values the company at about $800 million. Accepting a giant check from Yahoo would take care of that problem in one fell swoop, especially if it was all in cash.

With a major company like Yahoo as a partner, Tumblr could connect its massive audience of users to the firehose of ads and other monetization methods the giant web portal has, and potentially generate much more revenue than it could have by itself. The only lingering question at that point is whether Tumblr fans decide that Yahoo is poisoning the well of social content and community on the site, and decide to flee for greener pastures. In other words, does Yahoo make Tumblr into YouTube — a successful standalone network that can grow and prosper on its own — or does it become MySpace?

The only scenario where a Yahoo-Tumblr combo works is if Yahoo keeps Tumblr separate in the same way Google managed YouTube.—
Mark Birch (@marksbirch) May 18, 2013

Post and thumbnail photos courtesy of Shutterstock / ollyy and Albert Chau

After reporting Thursday that Yahoo was considering a number of options for Tumblr, including partnerships or strategic investments, ATD reported Friday that Mayer had decided to go all in. Om reported Thursday that Yahoo was worried about counteroffers from Facebook, much how Facebook stole Instagram from Twitter after Twitter co-founder Jack Dorsey’s courtship of the photo-sharing site. Now the board plans to meet Sunday to consider giving final approval to the offer.

Tumblr’s backers will likely be pleased with a $1.1 billion price tag, especially if, as reported, it involves cash However, it’s far from certain that such an outlay would do anything to revive Yahoo’s fortunes. Mayer certainly has been trying to bring new blood into the company of late, snapping up a number of smaller mobile startups before focusing on Tumblr over the last month.

Yahoo has scheduled a press event for Monday evening in New York to discuss “something special,” but it wouldn’t hint at anything else. We’ll be there to cover the event, but in the meantime, here’s Tumblr founder and CEO David Karp’s appearance at our paidContent Live conference in April, discussing his company’s fortunes:

There was much talk about both aspects of this ongoing evolution at the conference, from people like star blogger Andrew Sullivan and Tumblr founder David Karp to investor Ken Lerer and Guardian editor-in-chief Alan Rusbridger. What follows are just some of the key lessons or moments that struck me as significant during the show (you can also read our live coverage of each session and watch livestreams of each panel as well).

Paywalls vs. open journalism:

During my interview with him, one of the key points that Guardian editor Alan Rusbridger made was that there is a very clear tension between the efforts by an increasing number of newspapers to erect paywalls — in order to bolster their revenue — and the philosophical approach to journalism that sees openness and interactivity with readers as a cornerstone of what journalism has become. As Rusbridger put it:

“It is journalism that wants a response. It is journalism that is itself responsive. It is journalism that doesn’t just sit on the web as though it has no connection with the web, that acknowledges that the web is the most extraordinary revolution in publishing where lots of people will be publishing extremely worthwhile and informative information. And so you can produce better things by not ignoring it or building a barrier between yourself and that but incorporating it and linking to it.”

The many different flavors of paywall:

Much of the discussion that took place on the monetization panel — which featured Dick Tofel of ProPublica, Justin Smith of Atlantic Media, Raju Narisetti of News Corp. and Bob Bowman of Major League Baseball — was about the myriad ways in which media companies can charge for their content. Bowman argued that every media company should be charging its users, even if it is through some kind of “pro” version, and Smith announced that The Atlantic will soon be launching a content offering related to the magazine that will be subscription only, although he didn’t say what kind of content it would be.

Narisetti also talked a bit about his vision of a “reverse paywall,” which focuses more on membership benefits that readers could accumulate based on their engagement with a site — although Bowman said he thought this would just encourage readers to click on ads or perform other tasks in order to get something for free, and that advertisers would quickly see through this gaming and not be interested in advertising around it. Smith also pointed out that The Atlantic‘s event business produces a lot of revenue for the company, and therefore decreases the need for a strict paywall.

No one can agree on sponsored content:

On the panel that focused on the increasingly blurry line between editorial content and advertising, Felix Salmon of Reuters challenged Jon Steinberg of BuzzFeed, Kyle Monson of Knock Twice and Forbes chief operating officer Lewis D’Vorkin to define their terms — but the panelists spent most of their time debating whether “native advertising” of all kinds is inherently unethical or duplicitous in some way (the view held by Andrew Sullivan, who has railed against the phenomenon).

Steinberg maintained that the conventional wisdom that says average readers are confused — and in some sense misled — by sponsored content is hogwash, and that this is essentially a lie perpetrated by traditional media entities who continue to rely on banner advertising for their revenue. According to the BuzzFeed president, banner ads are a dying medium, and some form of sponsored content is the only real alternative. Monson, however, argued that if native advertising becomes too ubiquitous, readers will begin to ignore it the same way they currently ignore every other form of advertising.

Independence is a doubled-edged sword:

(L to R:) Andrew Sullivan, Editor, The Dish; Andrew Ross Sorkin, Columnist, NYT; Maria Popova, Writer, Brain Pickings; Tim Ferriss, Author, The 4-Hour Workweek paidContent Live 2013 Albert Chau / itsmebert.com

One of the highlights of the conference for many (including me) was a panel composed of superstar bloggers and authors Andrew Sullivan, Maria Popova, Andrew Ross Sorkin and Tim Ferris. Sullivan has famously bet his livelihood on going direct to his readers for financial support — although he maintained that he is not anti-advertising, as some have assumed. He said he is dedicated to that approach even to the point of not taking a salary until he can prove that the model works, and that he values his independence and his direct relationship with readers over the comfort of working for a large media entity.

Andrew Ross Sorkin, by contrast, has been able to build a fairly large team and business model for himself inside the New York Times — even though he could probably (or theoretically) have created something similar, and more independent, on his own. Sorkin said that his interest in remaining inside a large media entity stems in part from the resources it puts at his disposal, and partly from his commitment to the brand itself, since the paper took a large bet on him years ago when he created DealBook.

There was a lot more to the conference that I haven’t even touched on here — including a startup showcase featuring new platforms like Circa and Branch, a panel on the use of algorith-driven personalization with Mark Johnson of Zite and Aria Haghighi of Prismatic, a great look at the future of books with Dominique Raccah of Sourcebooks and Evan Ratliffe of Atavist, a discussion between Om and John Borthwick of Betaworks, and an interview with the architect of Aereo’s ongoing disruption of cable.

Thanks to all those who attended and to all of our speakers as well.

Post and thumbnail images courtesy of Albert Chau

Speaking at PaidContent Live in New York on Wednesday, Tumblr CEO David Karp described the site as a creative platform where users are free to grow an audience and develop talent that has the potential to see success elsewhere, such as the 70 users who turned their blogging skills into book deals. Karp said the company saw three book deals for users last month alone, but the company isn’t viewing that as the only metric of success.

“What’s even more interesting to me than people going through traditional paths are people who are using those new emerging platforms,” he said. “What’s so exciting to me about Tumblr as a media network today is this new generation of creative commercialization tools that are being built on top of these other networks. People who don’t have to go to Harpers to publish the book deal, they can self-publish on Kickstarter instead.”

Karp’s focus on creativity is an idea that extends into the way the company is rolling out advertising. The company recently started rolling out mobile advertising, and is working on making that advertising fit within the existing Tumblr network.

“We focused on higher up in the funnel, the type of advertising that creates intent,” Karp said. “It gives room for the most creative advertisers to create their best work. I think we’ve started to prove it, and see really good examples of it.”

But Karp noted that Tumblr isn’t profitable yet — although he expects it eventually will be — and he noted he has supportive investors for the company, which most recently raised $85 million in venture funding back in 2011. The company gained notoriety recently when it shut down Storyboard, the experimental project in which it hired an editorial staff to highlight and aggregate the best content on Tumblr.

“It’s not a knock on that team at all. We hired a really brilliant team to do really good work. We gave it a shot, we gave it a year. And after a year, we decided it wasn’t the right tool for our toolbox,” Karp said. “It was working in some regards, but not in the we wanted to see it look.”

Tumblr isn’t that focused on the number of pageviews the site is getting, Karp said, although users create 90 million new Tumblr posts per day. Instead, Karp said the focus has moved to time spent on Tumblr — now at 14 minutes per day — and figuring out how to monetize that content as well as helping new users discover interesting content without picking favorites among the blogs.

“We want to give you the stuff you’re going to love on Tumblr, but we don’t want to say what great stuff on Tumblr is. We don’t want to say what great content is, or these are our favorite blogs. We don’t wan to color it too much or scare anybody off.”

Check out the rest of our paidContent Live 2013 coverage here, and a video embed of the session follows below:

A transcription of the video follows on the next page

Go to page 2 (of 2) on paidContent .

In his post, Karp (who will be joining us at our paidContent Live conference on April 17) said that the idea behind the project was to create an editorial team of “experienced journalists and editors assigned to cover Tumblr as a living, breathing community” and to “tell the stories of Tumblr creators in a truly thoughtful way.” The Tumblr founder went on to say that:

“After hundreds of stories and videos… we couldn’t be happier with our team’s effort. And as Tumblr continues to evolve, we’ll always be experimenting with new ways to shine light on our creators [but] what we’ve accomplished with Storyboard has run its course for now, and our editorial team will be closing up shop and moving on. I want to personally thank them for their great work.”

The Storyboard team included Sky Dylan-Robbins, executive editor and former Newsweek/Daiy Beast staffer Jess Bennett — who posted on her own Tumblr that the group had “redefined journalism” and that she was “drunk on a plane” — editor-in-chief Chris Mohney and Christopher Price. A number of outlets wrote about Tumblr’s ambitions with the unit, which did what Mohney called “marketing as journalism.”

Although Tumblr has posted some fairly large traffic numbers, with more than 140 million unique visitors and 20 billion pageviews, the company has struggled to generate revenue — only recently launching an advertising program for its mobile app, after a long period of rejecting such money-making measures — and has promised that the network would be profitable this year.

Post and thumbnail photo courtesy of Pinar Ozger

Chief technology officer Eric Feng said in an interview prior to the launch of the new version that this is much more than just an evolution of Flipboard — it’s a major push into a whole new area, namely curation and publishing of content by individual users. “It’s one of the most ambitious efforts we have ever undertaken,” said the former CTO of Hulu. “It’s been more than 18 months since the inception of the idea, so this is a pretty big deal for us. We were originally focused on discovery and filtering of content, but now we are moving into curation in a big way.”

Flipboard has always had curated topics such as technology and sports, where the service uses a combination of human editors and algorithms — based on frequency of sharing and other metrics — to highlight specific content. In effect, the new tools allow any Flipboard user to take on the same role as an editor and create their own magazine around a topic, and share it with other users.

Reader magazines get promoted in Flipboard

In a nutshell, users with the new features (which are available only for iPhone and iPad currently, but will appear in an Android version soon, according to the company) can simply click a “plus” sign next to a blog post or article they are reading — as well as any video or audio content that appears in their stream — and add that piece of content or “flip it into” to a magazine, which will then be available to them or any other user who searches for that topic.

And Flipboard isn’t just giving users that ability within the app: the service is also launching a bookmarklet that will allow users to pull in content from anywhere on the web — whether it’s a blog post, a news website or Twitter and Facebook — and add it to their custom-created magazine. In a sense, Flipboard is trying to capitalize on the same curatorial impulse that makes people create collections about specific topics on Pinterest or re-blog photos on Tumblr, and in many ways this move is a shot across the bow of those other services.

It’s also clearly a threat to the existing publishing industry, since a Flipboard user can now create their own custom publication using the content that comes from dozens of different magazines, blogs, websites and other sources. So Flipboard is trying to bring publishers in as well and get them to create their own custom magazines — such as a magazine about the Beatles created with archival content from Rolling Stone. It has even built e-commerce functionality into the app so users can click and buy directly from within an article or ad.

But the most subversive aspect of the new features from a media-industry point of view is that they can be used by anyone — including advertisers. If an advertiser can create their own magazine by pulling in their own editorial content as well as content from other sources, and build e-commerce functionality into it, then it gives new meaning to the idea of brands as publishers and media entities.

Bringing users into the editorial process

The new version of the app will have a section called “By Our Readers” in the table of contents, which will include a mix of magazines that have been created by users on a variety of topics — a small group of beta testers (including GigaOM) have had access to this function for several months. As with the other Flipboard sections, some of the magazines that are highlighted will be chosen based on the number of times they have been shared, and others will be chosen by editors.

Like most news-aggregation and recommendation apps such as Pulse and Zite (which is owned by CNN), Flipboard users have always had the ability to share specific stories or items, but the new magazine-creation features effectively allow a user to spend some time creating a collection of content they can then share all at once. Feng used the example of an editor who is getting married soon and created an entire magazine with content about weddings.

In a way, the new version of the app also picks up where Google Reader and other RSS services left off. Instead of just passively consuming text and photos in a chronological timeline or series of folders, Flipboard turns everything into part of a magazine-style experience. According to Feng, many users have already imported their Google Reader feeds into the app, and those feeds will be available once Google sunsets the service in July.

The idea is somewhat similar to those Magnetic Poetry Kits: Users slide preselected words on top of artwork to create a poem. “The whole process takes less than a minute on your phone or tablet,” Storybird posted on its blog Thursday.

Storybird CEO Mark Ury told me that about 20 percent of the works that users created on Storybird were poetry,”so we knew we had demand.”

On the blog, he outlined the reasons that the company is excited about launching a poetry option:

“1. Fits on a phone, so that our members can use it anywhere. We want visual storytelling everywhere, because people and their stories are everywhere.

2. An even simpler storytelling format. Stories are hard to write and take time! Poetry is short and sweet. We used the same creative constraints for Poetry as we did with books: you can do only one thing, but that one thing is fantastic.

3. Poems are hyper social and look great on Facebook, Tumblr, and Pinterest. Your friends, family, and fans can easily read, share, and embed them.

4. They’re stunning. Poetry scales from the phone to the desktop (an AMAZING engineering and aesthetic feat from the team) to ensure the art looks great. It uses the same colour algorithms as our book covers and includes a light transparency on the word vessels, which makes the final compositions elegant and rich.

5. As with books and artwork comments, Poetry is designed to be family friendly. The word sets are fixed and were developed by a seasoned book editor from one of the Big Six publishing houses to enable creative expression without creative maligning.” (Ury wouldn’t say who the editor is.)

Storybird, which launched in 2010, has over two million members. The company has raised $850,000 in seed funding and is advised by former Tumblr exec John Maloney. The site operates on a freemium model, selling memberships to teachers and individuals, and also lets users pay to download stories as PDFs or order print versions of their creations. If the poetry model takes off, Ury says, Storybird will “sell downloads to print at home. If those do well, we’ll offer professionally printed cards or small posters.”

Many Storybird customers are schools. The poetry option isn’t rolled out for school accounts yet, but will be available to them soon.

I tried to help answer that question in my post from last year: Amplification and the changing role of media. The gist of that post was that “as more sources of news start to go direct by posting their thoughts to their blogs, Twitter and Facebook pages, a journalist’s role becomes more about deciding what to amplify and what to ignore.”

…the rise of the social web, that has changed. Blogs, Tumblr, Twitter, Facebook, Instagram and other such platforms have made it easy for news makers to go direct to their constituents. So what is the role of today’s media person? In addition to reporting news, I think picking things to amplify is also important. Back in the day, news people made a choice by deciding which stories to write. Today, we have to adopt a similar rigor about what we choose to share and amplify. In sharing (on Twitter or even re-blogging) we are sending the same message as doing an original news report.

The big media outlets still have one thing that they can leverage: attention. By leveraging that attention and highlighting things worth highlighting, they can continue to bring the news to their constituents and at the same time add veracity to it — and thereby add the kind of value that makes them worth keeping around.

At one end of the debate are skeptics who think comment sections are cesspools of trolls and cretins. At the other end are publishers like Gawker’s Nick Denton and New York magazine who believe reader contributions should be a core part of their editorial strategy.

Are readers who look at comments worth more than regular readers?

It’s no surprise that Disqus is in the “reader comments are great” camp — after all, the company not only sells commenting tools but is also building up a second line of business dedicated to turning comments into a forum for advertisers . The service, called “Promoted Discovery,” does this by perching links to paid-for content right next to reader comments. It’s already appearing in the comment sections of sites like Mens Health and the Observer and it looks like this:

As you can see above, the tool lets a website surface its own content on the left side while selling space in the right hand “recommended for you” box. In trying to tap this market, Disqus is competing with market leader Outbrain which also helps publishers and advertisers buy and sell web traffic.

Disqus’s big pitch to advertisers is that someone who takes the time to read the reader comments of a story is likely to be passionate about the topic — and more likely to click on, buy or otherwise engage with the proposed content. In its December “report card,” Disqus claimed readers who dwell in comments are more likely to visit other pages and spend more than twice as much time on the site. Meanwhile, reader comments overall are being treated with a new seriousness due to recent studies that suggest they shape perceptions more than we thought.

Big money from “native advertising?”

Disqus is also betting its promoted content will gain traction as a form of “native advertising.” The concept, hailed by some as a magic bullet to solve falling online ad prices, involves selling ads that mimic the content around it — for instance, sponsored tweets on Twitter. In the case of Disqus, the American Express story in the above graphic is a “native” ad. The company is so confident of the concept that it’s betting that the advertising scheme will soon become the bulk of its business.

“We expect advertising revenue to grow from less than 5% in Q4 of 2012 to over 60% of our revenue by the end of this year,” said the company’s CEO, Daniel Ha, by email.

It’s an ambitious goal but can Disqus pull this off? It has a number of factors in its favor, including the presence of veteran VC and native advertising champion Fred Wilson as one of its investors. The company is also in a good position to sign up clients due to the fact that it already has access to millions of websites.

On the other hand, the company’s quest to turn reader comments into gold faces some obstacles. One is Disqus’s capacity to find relevant content. When I visited several sites using “Promoted Discovery,” the suggested stories it proposed often had nothing to do with the article I was reading. A Disqus spokesman responded by saying the product is brand new and that its capacity to propose content will improve rapidly with use and as inventory grows. This seems a fair response — it’s likely Disqus will improve with scale.

The longer term challenge to making money from content is likely to hinge on publishers’ willingness to offer a service that will take readers away from their own website. For now, though, the websites are likely to simply welcome the extra money they receive from Promoted Discovery; Disqus says the first batch of checks is going out this quarter. It will be interesting to see what type of revenue-share arrangement Disqus and other middlemen will ask going forward — a Disqus spokesman wouldn’t disclose any specifics, saying the firm’s take is “industry average.”

And, finally, Disqus’s bet that comments will be an advertising gold mine could also be affected by competition from much larger players such as Tumblr; its founder, David Karp (who is speaking at our paidContent 2013 media conference in New York on April 17), recently said the site downplayed comments in favor of “a beautiful design and no jerks.”

(Image by ollyy via Shutterstock)

If Reddit does manage to raise enough venture funding to give itself a half-billion-dollar valuation, it would mark an incredible reversal of fortune for the company. Not that long ago, Digg was the superstar online community, the one that drove massive amounts of traffic to any link that was shared on the network — the one whose cofounder appeared on the cover of Businessweek magazine behind the title “How this kid made $60 million in 18 months.” Reddit, by contrast, was a much smaller phenomenon, and was quietly acquired by the Condé Nast magazine empire in 2006. (Reddit was spun off as a separate entity in 2011, but Condé Nast retains control).

As Digg went through a number of redesigns that ultimately drove away many of its hardcore users, Reddit continued to grow steadily, thanks in large part to a hands-off approach by its parent — something Steve Newhouse (chairman of Advance Publications, which owns Condé Nast) described in a recent interview with the New York Times. Reddit also became known for its community-driven innovations, including the “Ask Me Anything” feature. (Reddit general manager Erik Martin will be part of a panel on new-media entities, along with Jonah Peretti from BuzzFeed and Chris Mohney from Tumblr, at our paidContent Live conference in New York on April 17).

Can Reddit grow without suffering Digg’s fate?

By the time Digg came apart last year and was sold off in pieces to the Washington Post and Betaworks (which has since re-engineered the service), Reddit was by far the dominant player. And the community — which added a CEO last year with the hiring of Yishan Wong, a former Facebook engineer — has continued to hit new heights over the past few months: it engineered an “Ask Me Anything” interview with Barack Obama, and traffic has continued to grow at a phenomenal rate. But the site is clearly looking for ways to improve its revenue as well — Wong announced a membership drive last year that was designed in part to avoid the need for more intrusive advertising.

As a number of observers have noted, much of the content that appears on BuzzFeed — and drives massive amounts of traffic to the site’s viral posts — originates at Reddit. That fact can’t have escaped the company’s attention (BuzzFeed is valued at about $200 million, based on its most recent financing round). So why not try to build on that by expanding the reach of the network and taking advantage of the user-generated content it produces, instead of letting others like BuzzFeed get all the benefit? Raising venture funding would give Reddit some funds to accomplish that, and give Condé Nast a payoff for the money it has invested in Reddit since the acquisition.

For Reddit, one of the big challenges of this approach is that trying to turn the community into more of a mainstream media entity risks damaging the somewhat anarchic personality that gives the network most of its unique character. In some cases, that personality veers into outright offensiveness — as it has with some of the “sub-Reddits” run by notorious Reddit troll Violentacrez. Wong has said that Reddit is committed to free speech even when it is offensive to some, but maintaining that commitment is going to be harder once VCs get their hooks into the company.

Digg suffered from a number of fatal flaws. One of them was embarking on a series of redesigns that appeared to be driven by financial motives rather than user demand. If Reddit can achieve a half-billion-dollar valuation and continue growing as a media entity without falling into that particular black hole, then its transformation into a social-media superstar will be complete.

Post and thumbnail images courtesy of Shutterstock/Africa Studio and Flickr user jphilipg