“Hands-Off”: The Impossible Promise

Ah, the “hands-off” promise. When a highly publicized acquisition weds an insular startup to a giant media company, the giant media company’s vow to leave the insular startup untouched is inevitable.

The “hands-off” promise is both necessary to make and impossible to keep.

I remember hearing the promise from Jim Bankoff, who engineered AOL’s acquisition of Weblogs, Inc. in the fall of 2005, at a Weblogs retreat in New York. (Bankoff is currently CEO of Vox Media.) He meant it, and Weblogs was indeed given a long leash. Jason Calacanis, Brian Alvey and Judith Meskill operated the blog network as before the acquisition, with better technology infrastructure and a better hiring budget.

I was editorial director of Weblogs, and eventually took over business ownership of the unit after the founders left the company. For four post-honeymoon years in that position I had a close-up view of how multiple stakeholders in a large parent company systematically and necessarily break the well-intended “hands-off” promise. Even on a long leash, the startup plays a sometimes ferocious defensive game to maintain cultural and brand integrity.

David Karp will continue to own Tumblr within Yahoo, but he will not be the only owner. Marissa Mayer will be co-owner. Mayer was already — in the same hour as the obligatory “hands-off” covenant — outlining possible changes. Other departmental executives will surface in Tumblr stakeholder roles, especially sales, business development, legal and the editorial team of Yahoo’s main portal. Putting Tumblr into Yahoo is like throwing a boulder into a lake, and many executives will be accountable for maximizing the ripples. They are all co-owners.

Mayer specifically addressed the branding concern, promising that Yahoo would not slap its mark on Tumblr pages. That’s a no-brainer, although Yahoo has fallen into the trap of over-valuing its brand in past acquisitions, notably Flickr. But some degree of co-branding is inevitable, probably immediately, if Yahoo wants to capture comScore recognition of Tumblr’s traffic.

And it surely does. Major Internet properties, and their advertisers, are acutely aware of comScore positioning. At AOL, within minutes of comScore’s release of its monthly traffic report, I watched that thing rip through the company like a viral meme. In March of this year, Yahoo’s total U.S. traffic (that’s the filter most companies and their advertisers look at) put the company in the No. 2 spot, trailing Google by a mere one million unique visitors. That same month, Tumblr was credited with 29 million uniques. A certain post-acquisition bet is that Yahoo will do what it takes to vault over Google into the top slot.

And it takes co-branding. ComScore requires some mark of affiliation to acknowledge and report the traffic roll-up from an independently branded property to its parent entity. That’s why you see AOL’s logo in the footers of Engadget and TechCrunch, two sites where AOL’s mark hardly contributes brand charisma.

ComScore roll-up branding doesn’t really damage a professionally-produced editorial site. But there is greater sensitivity in a UGC (User Generated Content) destination where there is huge overlap of those who consume the content and those who produce it. The uproar among Tumblr bloggers over the acquisition is the first sign that the engine of Tumblr’s success does not want any affiliation with corporate overlords.

Speaking of UGC, it represents all sorts of trouble that will bring new influences to bear within Yahoo. Advertisers do not like appearing next to UGC. They don’t even like comments on pro sites, never mind the roiling swirl of unregulated blogs. Yahoo will create a monetization plan (Mayer is already leaking ideas and aspirations), and the company’s board and executive committee will synchronize Tumblr’s revenue potential with the drumbeat of quarterly reporting. Forecasts, operating budgets, timetables and deliverables will seep into the sales organization like wine into carpet. In meeting after meeting between sales and content, sanctity around Tumblr’s exemption from business as usual will be chipped away. To a category sales director, “hands-off” means not meeting a revenue deliverable, and getting a reduced annual bonus.

Advertising on Tumblr blogs is easy to predict, although who knows when. Run-of-service campaigns are clearly impossible for brand advertisers, and would be even without the heavy load of Tumblr porn blogs. The ability to produce specially-carved campaigns will have to be built into the publishing system, if it isn’t already. That slippery slope leads to possible special arrangements with highly-trafficked blogs, and a possibility of editorial management to some degree.

Enter the lawyer stakeholders. Yahoo’s legal stance for Tumblr will be based on “safe harbor,” a protection in the Digital Millennium Copyright Act that applies to UGC platforms whose owners do not exercise control of the content. Safe harbor is punctured like a balloon with the first bit of content oversight. If that happens, every legal complaint brought over publication of copyrighted media becomes Yahoo’s liability for damages, even if the infringing media is removed. (With safe harbor protection, Yahoo only needs to remove the source of a legal complaint.)

Online advertising is a buyer’s market in which advertisers often dictate terms and conditions. Tumblr will be caught in the tectonic grinding of conflicting interests. Tumblr’s founding principles demand freedom. Yahoo’s business requires revenue from the hordes of Tumblr users. The legal wing values safety above everything. The next quarterly always looms, and the questioning for years will be about Tumblr’s income, just as with AOL’s Patch and other daunting monetization projects.

Let’s not forget about synergy, the great M&A buzzword that informs all discussions leading up to the big purchase. Any company with many moving parts must consider how a major acquisition is going to play nicely with its other brands, technologies and cultures. An acquisition that brings a substantial audience with it is eventually going to be asked (which is to say, required) to share that traffic. If synergy is a dominant pre-acquisition buzzword in large content companies, recirculation is the post-acquisition mandate.

From this essential business goal comes a creeping incremental destruction of purity. The first sign might be a modest, inconspicuous footer on Tumblr blogs with softly-hued links to other Yahoo properties. Giving away that inch could result, a year later, in dreaded “related links” modules in the sidebar. From there it is a bold and victorious leap to universal headers with full co-branding and drop-down promos for Yahoo’s Mail and News enterprises.

I’m being cynical, and these are not explicit predictions. The honeymoon period is characterized by respect and caution. Weblogs brought completely new DNA into the AOL organism. Tumblr is likewise fresh air — loaded with a young demographic — for Yahoo. But Yahoo also has experience with social content (Delicious and Flickr), and Mayer is certainly determined to chart a better roadmap for Tumblr on her watch.

But the pressure will be on, sooner or later. Many jobs are a little more at risk when a company has spent over a billion dollars, and Tumblr will start showing the smudges of many fingerprints. It might all work out well. Nearly all of AOL’s most successful content destinations were acquired. (Others, like Bebo, were catastrophic, and the high burn rate to maintain Patch is controversial.) Tumblr could be Yahoo’s most successful bet, despite the many hands that will inevitably be laid upon it.

Brad Hill is the former VP of Audience Development at AOL, and former General Manager of Weblogs, Inc.