Gambling on Tumblr: Marissa Mayer’s Billion-Dollar Bet to Make Yahoo Cool

What's the price of "cool"? For Yahoo CEO Marissa Mayer, the number appears to be $1.1 billion

  • Share
  • Read Later
Jason Alden / Bloomberg via Getty Images

What’s the price of “cool”?

For Yahoo CEO Marissa Mayer, the number appears to be $1.1 billion. That’s how much cash Yahoo plans to pay for New York–based social-blogging platform Tumblr, according to multiple reports. Yahoo’s board approved the transaction on Sunday, and an announcement is expected on Monday, according to AllThingsD. Although $1.1 billion seems like a massive amount to pay for a company that generated only $13 million in revenue last year, it’s not hard to see Mayer’s logic: Tumblr has become a cultural phenomenon with over 100 million intensely loyal users reading and posting on over 100 million blogs each month.

That said, the deal carries risks for both companies. Tumblr is extremely popular with the highly coveted 18-to-24-year-old demographic. The question is whether Tumblr can burnish Yahoo’s image with younger users, some of whom weren’t even born when Jerry Yang and David Filo founded the company in 1994.

(MORE: Report: Yahoo Board Approves Billion-Dollar Tumblr Deal)

For many users, Tumblr’s independence and casual approach to generating revenue have been part of what made the site popular. For years, Tumblr founder David Karp resisted plastering ads on the site. But Yahoo, a public company, will face pressure to “monetize” Tumblr, and if Mayer acts too aggressively, she could alienate the site’s users, who feel a deep sense of community and ownership in the network. Already, many Tumblr users are less than thrilled about the Yahoo deal: when TIME wrote about the impending offer on Friday, hundreds of Tumblr users took to the comments section to voice their objections.

In short, for many users, the question is not whether Tumblr will make Yahoo cool, but whether Yahoo will suck the coolness out of Tumblr, as my colleague Harry McCracken observed. That sentiment was captured by TechCrunch co-editor Alexia Tsotsis, who told one of her colleagues that if Yahoo buys Tumblr, she will “seriously consider” moving her blog to another platform. “I don’t know exactly why, but my Tumblr is a part of my identity,” Tsotsis said. “And for whatever reason, I don’t want to identify with Yahoo.”

Tumblr users have good reason to be apprehensive, because Yahoo’s track record with acquisitions has been decidedly mixed. Remember GeoCities or del.icio.us? Even Flickr, the photo-sharing site Yahoo purchased in 2005, has languished in the shadow of upstarts like Instagram, which was purchased by Facebook last year for $1 billion in cash and stock.

(MORE: Marissa Mayer’s Wall Street Debut Sends Yahoo Stock Surging)

Mayer would be wise to follow the example of that deal, in which Facebook took a very hands-off approach to Instagram. And it sounds like she’s gotten the message, according to AllThingsD, which reported that the Tumblr brand will remain intact and Karp will continue running the platform. As one Tumblr source told the website: “This will be a very delicate dance, since so much could go wrong if done without care.”

The truth is that it’s going to take a lot more than a splashy acquisition to reverse Yahoo’s multiyear slide. For nearly a decade, Yahoo has been adrift, lacking a clear vision and strategy, as it’s been eclipsed by Google as well as social-media giants like Facebook and Twitter. For years, Yahoo seemed intent on becoming a new media-and-entertainment behemoth, particularly under former CEO Terry Semel, who spent over two decades working in Hollywood for Warner Bros. before joining Yahoo. He left the company in 2007.

Since then, the Internet giant has had a series of chief executives who failed to reverse the company’s slide. The situation reached a nadir earlier last year during a bizarre episode involving former CEO Scott Thompson, who admitted he didn’t have the computer-science degree he listed on his résumé when he got the Yahoo job. Thompson, who had replaced the outspoken Carol Bartz as CEO, was soon jettisoned. Veteran media executive Ross Levinsohn was named interim CEO, but Yahoo’s board clearly felt that more drastic change was needed and hired Mayer, an accomplished engineer with computer-science degrees from Stanford, who was Google’s 20th employee.

(MORE: Can Google Star Marissa Mayer Save Yahoo?)

Since assuming command of Yahoo in July, Mayer has made clear that she wants to incorporate Yahoo’s products — like Yahoo Mail, Flickr and its popular home page — into the “daily habits” of its users. In order to achieve that goal, Mayer is trying to refocus Yahoo on the “user experience,” which was her specialty at Google, where she played a major role in developing Google’s famously minimalist search-box layout, and would eventually spearhead Google’s most successful products, including Gmail, Google News and Google Maps. Tumblr’s focus on design clearly dovetails with Mayer’s aesthetic sensibility.

Yahoo’s $1.1 billion deal to buy Tumblr is Mayer’s largest acquisition to date, and represents something of a high-stakes gamble, because the purchase price constitutes over one-quarter of the cash and short-term investments on Yahoo’s balance sheet. It’s hard to imagine Yahoo undertaking another billion-dollar acquisition anytime soon, and it will likely be years before it will be possible to assess whether the deal is successful.

Mayer’s challenge now is to begin leveraging Tumblr’s massive user base to boost Yahoo’s bottom line. But she needs to act carefully. Internet users are fickle, and teenagers doubly so. If Tumblr’s loyal users feel Yahoo is “messing” with their beloved community, the site could face an exodus. And that wouldn’t be cool.

21 comments
jakedavidrohde
jakedavidrohde

Here is the problem... YAHOO cares nothing about the communities who use the products they buy. They buy something cool... try to make it "better" by ignoring the very people who made it what it was... Alienate that user base by trying to "integrate" other YAHOO "tools"... and then they are surprised when the established community is upset and their product becomes un-cool.

Just look at the recent Flickr update... Everything started to go downhill when YAHOO bought Flickr. And with the recent "re-design" and updated product model, YAHOO has finally alienated the last remaining loyal users, the people actually paying for the service. 

Currently 110 pages of people (99% of people) hating the new design: http://www.flickr.com/help/forum/en-us/72157633547442506/

YAHOO kills Flickr: http://gizmodo.com/5910223/how-yahoo-killed-flickr-and-lost-the-internet

YAHOO is the killer of cool.

JustinTime1
JustinTime1

Wow. Mayer is so innovative! How did she ever think of it! Must be all those former work-from-home employees now in the office.

ibtlius
ibtlius

Is this a strategy to counter facebook ?.....  with tumblr ?....

Its going to be one heck of a costly mistake for an already struggling Internet giant......

And why not? She is guaranteed a golden parachute anyways if things go bust!..... 

ToughButFair
ToughButFair

". . . Mayer has made clear that she wants to incorporate Yahoo’s products — like Yahoo Mail, Flickr, and its popular homepage — into the “daily habits” of its users".

ROTFL!  Yahoo hasn't even established a reliable log-in protocol yet - not even for its inelegant, failure-prone, e-mail.  And don't even mention its failure with Groups - which are accessible some days to Group members, but on other days - sometimes for several days in a row - there's no way in he!! for a Group member to gain access to his/her Group's data.  What sane person would voluntarily subject themselves to any of the Yahoo products as a "daily habit"?  ROTFLMFAO!

ToughButFair
ToughButFair

Based on the ongoing, existing, dysfunctional diaster that Yahoo is today, one hopes that they plan just to shut down everything they've created so far - and become Tumblr.  And then leave well enough alone, going forward.  One can hope.

juliaser
juliaser

I think this is a good move by Marissa that would benefit both companies. Yahoo could make Tumblr better with help from Microsoft. But there are other new and fantastic websites that Marissa should consider buying. http://t.co/nFk8F3BhLA

ridiculousworld
ridiculousworld

Alert: Yahoo is NO dinosaur foolish children. There are no dinosaurs online, only survivors and Yahoo has survived.

ridiculousworld
ridiculousworld

To the simpletons who actually think their online opinion influences anyone especially big business big money decisions? I have one word for you FAIL!

ShaniquaWilliams
ShaniquaWilliams

Yahoo cannot be made cool. It is an internet dinosaur, and needs to just fall over and die.

financeboomer
financeboomer

Sounds a lot like the Internet bubble purchases.

AmericanRobb
AmericanRobb

A huge gamble but it could pay off. I don't think Tumblr users will move their sites. I think it would be key for the bloggers to be able to profit in some way from the advertising that will likely be plastered before their or scrolling below their sites. Then it will be a win win situation. One positive thing that can come out of it is that Yahoo will undoubtedly take a stronger hand at controlling content that is easily accessed by kids.

notLostInSpace
notLostInSpace

You cannot buy "cool".  You also cannot spend a billion dollars without someone somewhere wanting ROI.  That will put huge pressure on people to make it more popular (and thus drive earnings) and will probably screw up what they had.  And it is two businesses that are not really all that similar, reminds me of Ebay buying Skype.

Rachealvicca
Rachealvicca

May be some People Disagree with me , But in My opinion it is a horrible deal. Because Yahoo and Tumblr are Extremely different from each other. I Don't Know what Marissa want to achieve from this. Bad Deal with lot of complex aspects 

http://googlefeed.com

jtravisxinc
jtravisxinc

The problem, as stated here, is that people are too fickle. Opposed to change. And quick to revolt if they don't get their way. Which is sad.

notLostInSpace
notLostInSpace

@lbAgora does it remind anyone of that nitwit who nearly ruined HP by buying Compaq?  Carly Fiorina.  Who then thought she should be elected and spent millions of her own money to lose. 

JKPost
JKPost

@jtravisxinc 

All their enemies with massive tsunamis have surrounded the evil nations indonesia from all directions. 

From the deep seas they just push the red buttons to sink indonesian islands the terrorist's nests. 

Australia has the best locations for the international military bases to attack the evil indonesia. 

WW3 should be in indonesia as the battle fields for the angels destroying the evil indonesian terrorists.

JKPost
JKPost

@ReGloball 

All their enemies with massive tsunamis have surrounded the evil nations indonesia from all directions. 

From the deep seas they just push the red buttons to sink indonesian islands the terrorist's nests. 

Australia has the best locations for the international military bases to attack the evil indonesia. 

WW3 should be in indonesia as the battle fields for the angels destroying the evil indonesian terrorists.