At a recent conference, Ken Goldman, the chief financial officer of Yahoo, admitted that the internet giant had an aging audience and was looking for things to “make us cool again.” The firm’s senior executives appear to think Tumblr can give it a shot at rejuvenation. According to various media reports, Yahoo is paying $1.1 billion for the popular blogging service. (Editor’s update (May 20th, 12pm GMT): Yahoo announced the deal on Monday morning.) Other companies like Facebook are said to be interested in Tumblr, but Yahoo is thought to be the preferred bidder.
It is not hard to see why Tumblr has attracted the internet giant’s attention. The business, which was launched in 2007, is hugely popular and many of the service’s users are young folk who like to share everything from their latest fashion tips to pictures of cats with their heads encased in bread (yes, really). Tumblr has grown rapidly and now has some 117 million unique monthly users according to ComScore, a research firm. It manages 108 million blogs and hosts 51 billion posts.
Tumblr’s sizeable audience appeals to Marissa Mayer, the boss of Yahoo, who took over the reins at the internet firm last year. Her brief has been to try and turn around a company whose share of the online advertising market is being rapidly eroded by the likes of Facebook and Google. In the first quarter of 2013 Yahoo’s revenue shrank 11%, to $1.1 billion.
In a bid to reignite growth Mayer has spruced up some of Yahoo’s aging products, including Flickr, a popular photo-sharing service, and has taken the company on an acquisition spree. In March, for instance, the company forked out $30 million for Summly, a company founded by a 17 year-old that makes apps that summarize news stories. And more recently it courted Dailymotion, a French video site, only to back away when the French government kicked up a fuss about an American firm acquiring one of the country’s start-up crown jewels.
The common thread here is Mayer’s firm belief that Yahoo needs to make headway in new areas such as mobile services and online video if it is to prosper. The firm has also been looking at social networks and other online-sharing services, which has brought it to Tumblr. The big question is whether it makes sense to fork out a whopping $1.1 billion for a company that is said to have made just $13 million of revenue last year.
Among other things, Yahoo will probably argue that it can speed up Tumblr’s expansion by promoting it to Yahoo’s 700 million unique monthly users. It will also point out that it has the know-how and resources to help the blogging service mint money from online advertising. And it may drop hints that Tumblr executives can help it rethink other areas of its business to make them more social.
Critics have been quick to point out that advertisers are unlikely to want their ads to appear alongside some of Tumblr’s content, notably numerous blogs that feature pornographic content. They have also been pointing out that a big part of Tumblr’s appeal is that its bosses have not let the service become overrun with advertising. If Yahoo starts to pump in huge numbers of ads, people may abandon the service in droves.
True, but if Yahoo manages the acquisition carefully it could turn out to be a smart move. Plenty of folk predicted a mass exodus from Instagram, a photo-sharing service, after Facebook snapped it up for $1 billion last year. But the social network has managed to develop the service without making users head for the exit. If Yahoo can pull off a similar feat with Tumblr, then it will certainly appear cooler to its shareholders.
© The Economist Newspaper Limited, London (May 20, 2013)