How Yahoo can benefit from Tumblr acquisition

As we all know, Yahoo acquired the free blogging site Tumblr for a staggering 1.1 billion dollars in cash. The question on everyone's mind is, how does it even make sense?

I think it does, but it will take some smarts from Yahoo to make it work.

Tumblr and Advertising or more like, Tumblr vs Advertising

Tumblr has long survived the advertisement onslaught that seems to be the primary business model for most blogging websites. Tumblr could alienate its devoted users by introducing advertisement in a "My way or highway" approach, but it can still benefit from the acquisition in the following ways.

1. Revenue Sharing with Blog Writers
2. Higher Click Through Rate through better Customer Profiles on existing Yahoo properties

Let me explain, each of these below:

1. Revenue Sharing with Blog Writers

In this approach, Yahoo would allow blog authors to turn on advertisements in a opt in revenue sharing model. This means blog authors can control their destiny, and if they do opt in, they have an incentive to do so.

2. Higher Click Through Rates through better customer profiles on existing Yahoo properties

In this approach, Yahoo would provide more focused advertisements to users on existing Yahoo properties based on a more complete profile leading to higher click through rates. Should Yahoo choose to avoid adding any advertisements on tumblr sites themselves, more focused advertisements based on cross website analytics could lead to higher click through rates.

For example, if you are an investment banker with interests in cupcakes, Tumblr would allow Yahoo to collect this information through a more complete profile for a user. This would imply higher advertisement rates and better click through rates for advertisements for existing Yahoo properties.

This may also propel demand for advertisers looking at alternatives like Google and Facebook platforms. Tumblr has long regarded itself better than other social media outlets because it allows users to give full expression to their alternate selves.  A Yahoo  could now map the link between what is and what a person aspires to be (atleast for a little while). While it will be a while before the 1.1 billion dollar payout can be recovered, this will definitely provide a revenue and margin upside to Yahoo in short and medium term.