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Why Yahoo acquiring Tumblr for $1 billion makes a certain horrible kind of sense

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According to a blizzard of anonymous news reports, Marissa Mayer is working feverishly to land the biggest fish of her career as CEO of Yahoo (s yhoo): namely, the $1-billion-plus acquisition of New York-based Tumblr, the ultra-hip blog network — the two are reportedly involved in discussions that could come to fruition as early as Sunday. Although Tumblr fans seem horrified by the idea, this one makes a substantial amount of sense for both sides.

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.

Update: According to the Wall Street Journal, the Yahoo board of directors has approved a $1.1-billion all-cash bid to acquire Tumblr.

It makes Yahoo look desperate — because it is

Marissa Mayer at Davos

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.

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.

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?

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

27 Responses to “Why Yahoo acquiring Tumblr for $1 billion makes a certain horrible kind of sense”

  1. That deal is great news for other small startups like Yahoo competitors like Microsoft, AOL and Google might be interest in their own competitive social sharing platform that values users freedom of expression. has a monetization strategy that doesn’t require ads. Wow! This is a must see! Founded by Charles E. Campbell in 2012 with a vision to respect the privacy and free speech rights of its users, does not require identifying information to register nor does it store user’s Whouts after they post. The next iterations will include mobile tablets and smartphone apps. Early stage seed investors should take a look.


    Charles E. Campbell, Founder & CEO, Inc.
    Allen Hydro Energy Corporation (AHEC), Inc.

  2. Yahoo has become a laggard company who chases the ghosts of past. Why are they even thinking of Micro-Blogging sites now. In past, they acquired Flikr, now, not even a flickering bee goes there. Instead of chasing the new user-base, they could have pushed envelope to satisfy their retain their existing customer base. At least for Blogging, this market has been smashed and conquered by Google and WordPress. Tumblr is for those who are looking for few fancy features but not integrated experience, what Google or Facebook offers.
    I moved out my content from Tumblr a while ago, citing issues with integrated experience and lack of complete ecosystem. Yahoo would have been much better off if they could have invested their money in some future technologies like Glass, Cups, Plates, etc.

  3. Intent Data

    I think it is clear Yahoo want to be the prime content engine for the web, and leverage that across the interest graph. Their own networks, users and traffic are becoming less important. It certainly holds with Marissa’s interviews in Davos earlier in the year. Not so sure what Tumblr has to gain though apart from repay some significant investors I’m sure. for Data Analytics news, events and jobs.

  4. Amir Homayoun Rafizadeh

    Valuation is way too high and honestly ridiculous. Assuming they do this, we have to wait 5 years. Remember aol? $1B is not going to add any new jobs nor is it going to solve any unique customer problems. More advertising and content is not the answer for Yahoo. #business #valuation

  5. Guest

    Tumblr looks like a Pinterest/Instagram/G+ standin that Yahoo could potentially use as a crowbar to get it into the mobile posting game. But Yahoo is late to the game of cutting edge acquisitions. Plus Yahoo’s user base skews toward women. Will women like Tumblr? If not, is it enough to bring more men to Yahoo? Or is Yahoo merely acting as a shill of some kind to either establish a valuation for a tech company (is Yahoo or its board or shareholders also sharedholders of Tumblr?), or to take out a potential threat to one of Yahoo’s friends (Google or MS or FB for that matter)?

  6. jacob

    Actually in many ways I find that social media is more or less what The Matrix portrayed. Smart, successful and interesting people stay out or get out…

  7. jacob

    Networks and social is overrated.
    I checked out of most social media sites as a new years resolution and since then I have more fun with friends (bye bye facebook & cie), and my career is really taking off (bye bye linkedin & cie).

    When are we going back to making products and real content and actually being interesting again?

  8. Brian Kennedy

    I have looked at tumblr many times and do not even know WTF is it, much less how it will ever make money. I hope we return to the days where companies actually MADE products, rather than connected people with way too much time on their hands so they could share their mindless thoughts to largely invisible audiences.

    When you complete an article, there are requests to share it on 200 something sites all serving pretty much the same function

    I have to think that outside of BB that all these other social sites are part of a bubble.

    • Johnny

      “rather than connected people with way too much time on their hands so they could share their mindless thoughts to largely invisible audiences. ”

      Kind of like the Comments section of Web articles.

    • steph1234

      Connecting people is a positive thing. That’s basically what the Internet is for… any thoughts are not mindless, even your hypocritical one.

  9. William Mougayar

    If they were indeed jumping from $13 mil to $100 mil in one year, it means monetization is working & I wouldn’t sell. I would rather think IPO. There’s some info missing in this equation. The plot is thickening.

    • Tumbler is a non-propritary service company that does not have enough revenue generating opportunities, or some unique software algorithm to run try for an IPO. They would need to seriously diversify their portfolio and start buying up other service businesses so they could have the additional revenue streams, or find companies that could inject some type of unique data mining code or something they could patten and then not just be the cool blog company.

      Just so you know this is something their board has zero interest in doing.

      Just take one look at their their board and you will see the who’s who of VC tech money. The Yahoo deal is a win-win for both their investors and the company as a whole. With Yahoo already agreeing that it will be held as a separate unit, the employees are covered, and will get the added benefits that Yahoo brings.

  10. Yahoo should acquire The North Korea of the Internet instead. I refer to that grim police state known as Quora. These losers deserve one another.

    • Sandy C

      I’m already looking for an alternative. Everything Yahoo touches dies. 360, Pulse, Profiles, Chat, Photo Albums… now Tumblr.

  11. indichas

    If it is true, I hope the deal falls through. If Yahoo! acquires Tumblr, it will be the death blow for Tumblr. The only bright spot in that scenario, is that it could pave the way for someone to create an alternative platform similar to Tumblr.

    • Frankly, since Tumblr has yet to figure out how to effectively monetize the platform, this would seem a very unwise investment for Yahoo! — especially at an evaluation of $1B (does anyone remember GeoCities).

      If it’s true, Karp and his investors must be laughing at this ridiculous windfall.