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.