The $1.1 Billion Dollar Deal for Tumblr

Yahoo! is buying companies like it’s 1999 – though I’m not sure that’s a good thing. The $1.1 billion dollar acquisition of Tumblr by Yahoo! is just another instance in a string of established internet companies buying hot start ups. For those of us who don’t know, Tumblr (who most VCs describe as an “online internet blogging thing”) is a six year old company with a user base of 100 million – like similar online start ups, it doesn’t make any money. The blogging site struck a deal with Yahoo! on Monday and will remain an independently operated business unit.

Established internet companies burning through a billion in cash to acquire hot start ups is nothing new: Facebook shelled out a billion in stock and cash to acquire Instagram (another company that doesn’t make any money); alternatively, Google paid $1.65 billion in stock to acquire YouTube in a stroke of genius. The question is: what lack in competence is Yahoo! trying to accommodate for by purchasing Tumblr?

Well, unfortunately, Yahoo! currently lacks a few things. The status of social networking on Yahoo! is equivalent to a dark void and the only person I’m aware of who routinely uses Yahoo! as their go-to search engine is my grandmother (I’m just kidding, but their user base is skewed slightly older). In a nutshell, Yahoo’s purchase of Tumblr is an obvious attempt to fill some of these gaps – namely the huge user base of Tumblr and the adoption of Tumblr users on Mobile (another medium in which Yahoo’s presence is lacking).

Even with these obvious advantages, why would Yahoo! pay a premium for Tumblr (previously valued at $800 million)? More so, how is Yahoo! going to make any money off of Tumblr? Wait, let me guess…does it have anything to do with ads? Hmm…and how are Tumblr users going to respond when Yahoo! forces them onto some new, clunky platform that’s plagued with Coors Light ads for Superbowl Sunday? My guess is Tumblr users will not be thrilled…none the less, Yahoo! will get access to the vast amount of personal user information Tumblr possess – something it will surely take advantage of in targeting ads across its various properties.

What makes Tumblr great is that it makes publishing easy – it mixes blogging with social media features that makes sharing ideas seamless. The outstanding question is whether or not bloggers will mind the increased ad presence regardless of the rev. share opportunity I’m assuming Yahoo! will throw at them – this is water that Yahoo! will have to tread carefully in order to be successful with this acquisition moving forward.

All in all, will acquisitions like this pay off for Yahoo? The jury is still out – if we go upon historic performance I would say no. Remember Flickr? That certainly didn’t turn Yahoo! into a photo sharing powerhouse and may be a reason why Facebook hasn’t turned Instagram into an online catalog. In order to really improve performance (Yahoo! share price has wavered between $14-25 since the beginning of time) Yahoo! will have to focus on their core competency, search, instead of focusing on an acquisition strategy that is far from cohesive.

Per Marissa Mayer, Yahoo! employees aren’t allowed to work from home…so I’m assuming the company will have ample opportunity for brainstorming strategy moving forward…


Dustin Lewis About the author
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