In a major move this week to buy growth, struggling Internet giant Yahoo acquired blogging service Tumblr for a whopping $1.1 billion. The deal, which was announced on Monday, will allow Tumblr to continue to be independently operated as a separate business – CEO and founder David Karp will remain in his position at the company. In announcing the deal, Yahoo CEO Marissa Mayer gave a quote for the ages. “We promise,” she said, “not to screw it up.”
This move gives Yahoo ownership one of the most popular social media platforms among younger generations of users. The purchase of Tumblr is being compared to other recent deals such as Google’s $1.6 billion acquisition of YouTube, or Facebook’s $1 billion purchase of Instagram. But this isn’t the biggest deal Yahoo has ever done. Yahoo spent more on at least three other occasions, as detailed in this story by NPR. Perhaps the most infamous was Yahoo’s 1999 purchase of Geocities for $3.7 billion.
This move is an important and risky move for Yahoo, which has steadily lost users in recent years to heavier and hipper companies like Google and Facebook. Yahoo hopes that Tumblr’s 100 million blogs and 300 million monthly visitors will infuse some much needed traffic from a younger generation of users into the company. But there’s already been a backlash. Many of Tumblr’s bloggers (without which the site would be useless) are up in arms over Karp’s decision to sell to Yahoo. Many believe that Yahoo just doesn’t have enough of a “cool” factor to successfully run Tumblr. Matt Mullenweg, CEO of Tumblr rival WordPress, claimed that defections from Tumblr to WordPress spiked to “over 72,000 in one hour.”
In addition to users who have jumped ship simply because of Yahoo’s reputation, the company also has to worry about losing users while trying to accomplish its key goal of dramatically increasing ad revenue. If they can’t find an innovative and non-intrusive method of advertising on Tumblr, they will surely alienate even more users. Mayer’s proposed solution to this potential problem is to start out light on ads, and slowly introduce ads that “really fit the user’s expectation and follow the form and function of the [Tumblr] dashboard.”
Few observers seem to be overly optimistic about the deal, and those who aren’t outright opposed to it seem indifferent. CNN Money quotes a JP Morgan analyst who believes the deal will succeed because of Yahoo’s current management, specifically Mayer’s leadership.
Many analysts are more concerned about the future of Yahoo with regard to the upcoming IPO of Alibaba (which Yahoo has 24% share of), a Chinese Internet company with an estimated public worth of around $70 billion, which is expected to have a much larger impact on Yahoo’s stock. According to Business Insider, “in the event that Alibaba’s IPO does not live up to expectations, the fallout for Yahoo will be far more serious that anything that happens with Tumblr.”