When you read the headlines of a $1.1 billion merger with little revenue, you immediately start to have doubts. But, the real opportunity with this merger could be brilliant for both Companies, if they execute their vision correctly. 

This not only makes Yahoo more relevant, it solves their growth (usage) issues, and creates a huge opportunity for real-time marketing to happen with data being their biggest currency.

• Yahoo needs to have a seat at the table in order to compete in a world that has become social. Facebook has it’s own network and Instagram, Twitter has its own network and Vine, and Google has Google+ and YouTube. This becomes Yahoo’s solution.
• Tumblr has an earned media model for Brands. Brands want more followers and more people to see their content. Similar to Facebook Ads (driving Likes and Sponsored Posts), if Yahoo were to inject Tumblr native ads onto its owned assets (Homepage, Mail, etc.) they essentially can allow brands to pay more money for distribution across its owned assets.
• On Yahoo’s Q1 earnings announcement, Yahoo reported:

The Number of Ads Sold (excluding Korea) decreased approximately 7% compared to the first quarter of 2012.

Price-per-Ad (excluding Korea) decreased approximately 2% compared to the first quarter of 2012.

• This helps solve the above problem, Marisa pointed out the combination of Tumblr [and] Yahoo! could grow Yahoo!’s audience by 50% to more than a billion monthly visitors, and could grow traffic by approximately 20%.”

This purchase also allows Yahoo to sell to different types of advertisers.  As Ad Exchanger notes, “Whereas Yahoo is known for its strength in finance, news, and sports, Tumblr is a hotbed of fashion, design, architecture, and art, she said. So the profile data Yahoo uses to reach Tumblr users across websites and devices may be linked to related advertising categories.”

Also, Tumblr is just as much of a mobile property as it is a display property. Tumblr’s ability to help Yahoo ramp up its mobile story could generate enormous growth for shareholders in a world that is becoming mobile. Include the first party data it can transport onto mobile, and you have a great story to sell to brands.

We are living in a programmatic world. The world is headed toward a fully automated environment where you don’t just sell inventory, such as Yahoo Sports; you sell audiences. The opportunity here is not to sell ads on Tumblr; the opportunity is to marry and own the data that allows real-time marketing to happen. A user talks about a brand, and others chime in. Now, Yahoo has a great way to discover these conversations and retarget on these same users across its properties. Think about the idea of how social conversations can become signals for a brand to reach its customers throughout Yahoo and across the web (through Right Media).

Is all of this worth $1.1 billion? Yes. In my view, through this acquisition, Yahoo is cementing its position as the place for advertisers to discover not just premium content but premium audiences. This deal makes Yahoo a must-buy. The challenge now will be for Yahoo to evolve its ad tech to take advantage of this opportunity.