Yahoo! Buys Tumblr for US$1.1 Billion

During May, Yahoo! acquired one of the leading blogging services – Tumblr – for US$1.1bn. This is a notable deal, made by Yahoo’s chief executive Marissa Mayer who was appointed in July last year, and she has called the move a “unique opportunity”. However, it could also be a huge risk for Yahoo!, which now has to generate revenue from the deal without alienating the Tumblr user base.

The plans for the acquisition are for Tumblr to continue operating under its own brand and independently of the new owner, with co-founder David Karp continuing as Chief Executive. Tumblr combines elements of blogging with social networking, and its simple design has attracted millions of users since its launch. According to the site, it now hosts 108 million blogs, with over 50 billion posts. Crucially, it also has a significant presence on mobile devices.

Observers says that the move is partly an attempt by Yahoo! to regain favour with the younger ‘hip’ market, where Tumblr has proved a great success. Yahoo! has lost favour in recent years, both in terms of search and also as a social site, although the initial reaction from Tumblr users to the takeover has been mostly negative – which would be expected.

However, Yahoo! is hoping that its purchase of Tumblr will boost traffic to its other properties, such as the photo sharing site Flickr, which is being relaunched with new features to compete against Instagram. But the question is really whether the US$1.1bn fee will also help to boost revenue?

Analysts suggest that Yahoo! has significantly overpaid for the deal – Tumblr’s 2012 revenue was just $13m, according to a recent report by Forbes magazine, and despite its fast-growing user base, it has struggled to make money and has traditionally resisted advertising. Yahoo! says they will be working with Tumblr to create ads that “are seamless and enhance the user experience”. However, there is a danger of alienating users with more advertising – a challenge that faces most social media sites, including Facebook and Twitter.

Yahoo! has struggled in recent years, with a lack of direction and innovation, which is the reason why Marissa Mayer was brought in from Google. Despite this, Yahoo! remains a major online property, with around 700 million visitors to its website every month and the majority of its revenues comes from advertising. However, it has limited mobile reach and lags behind Google in the search engine rankings. It also shed more than 1,000 jobs during 2012 and has long been divided over whether it should focus on media content or on tools and technologies.

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