With the $1.1 billion acquisition of Tumblr apparently wrapped up and ready to be announced Monday morning, Yahoo and its hard-charging CEO Marissa Mayer are making a big bet that the Internet pioneer can return to relevance.
Since she took over Yahoo 300 days ago, Mayer has shaken up the staid company with everything from controversial work policies to a wholesale turnover of the executive team to a flurry of acquisitions. But the purchase of Tumblr shifts her attempted renovation of Yahoo onto an entirely new plane.
It’s easy to find good reasons for the deal, since Yahoo’s continued struggles to keep up with rivals such as Google and Facebook make almost any bold move look good. But two loom largest:
* Relevance
As many have pointed out, Tumblr’s appeal to the current young generation of people online is what Yahoo itself has to rekindle. Or, as this deal indicates, what Yahoo has to buy wholesale and hope it can avoid screwing up. Tumblr clearly has struck a chord with people who want an easy, flexible, and creative way to express themselves to friends and the rest of the world. The startup has managed to achieve that delicate balance even amid so many other choices, from WordPress to Facebook to Twitter.
What’s more, while Tumblr initially struggled like many an established online company with people’s rapid shift to accessing content and communicating on mobile devices, it has recently seen its mobile traffic skyrocket. Yahoo, the iconic Web company, needs as much mobile mojo as it can beg, borrow, buy or steal, so Tumblr should help it in a big way.
Not least, Mayer’s latest move, like many of her others, has people noticing Yahoo again, and not because of some new train wreck. As former Yahoo executive and current LinkedIn CEO Jeff Weiner tweeted: “Whether new policy decisions, product launches, or acquiring Tumblr, Marissa’s got people talking about Yahoo again in a meaningful way.”
There’s no telling if talk will turn to use and engagement, but it’s a necessary start. And it’s one that no previous CEO, at least in a positive way, has been able to do in, oh, about 15 years.
* Revenues
Seriously. Everyone knows Tumblr, whose CEO David Karp famously (and, in Silicon Valley, far from uniquely) once said he didn’t like advertising, isn’t making much money. That’s leading many people to say (again, not uniquely) that Yahoo is way overpaying.
They’re missing the point. Tumblr has bet on so-called “native” advertising that, like Google’s search ads, Facebook’s news feed sponsored stories, and yes, even television commercials, fit into the flow of what people are already doing on those respective media.
What Yahoo brings to that native advertising, author and Federated Media Publishing Executive Chairman John Battelle correctly recognizes, is scale. The knock on native advertising is that advertisers don’t want to create a different ad for each site, because they can’t reach people at large scale that way.
Yahoo, which for all its faults still has a very large audience, could bring scale to Tumblr’s native advertising, especially if former Google executive Mayer can recharge and apply Yahoo’s automated ad technology to it. Native ads at scale could finally woo brand advertising dollars from television, especially as people’s video consumption continues to fragment.
If even some of these scenarios come to pass–and not everything has to work perfectly–$1.1 billion will look like chump change. For pete’s sake, Yahoo paid almost $6 billion for Broadcast.com, which became–well, perhaps Mark Cuban can remind us what. Yahoo spent $3.6 billion on GeoCities, which became Yahoo GeoCities, never to be heard from again. Overture Holdings, inventor of the business model (if not the implementation) that made Google what it is today, cost it $1.6 billion.
Indeed, those failures (OK, maybe not Overture, which at least gave Yahoo a decent search ad business for awhile) are why a lot of folks have their doubts about Tumblr, or at least the price to buy it. (That, and the lack of revenues and all the porn.)
Clearly such doubts are on Mayer’s mind. Reports indicate Yahoo also may have some news Monday on Flickr, the photo sharing site it bought when it was hot years ago, only to let it languish like it did with countless other acquisitions. I have to believe that whatever Mayer announces, she will attempt to send a message that sounds something like this: We’re fixing Flickr, so you can be sure we’re not going to fumble Tumblr.
But let’s get real. Regardless of all the pontificating you’ll hear in coming days and weeks, no one knows the answer to that question in the headline. Mayer has only barely reversed Yahoo’s decline. So all the detailed explanations, like those in this post, of how Tumblr helps Yahoo like YouTube helped Google or like Instagram might help Facebook? They’re all moot. So are all the predictions that Tumblr is GeoCities 2.0 and Mayer is chasing an asset that will start depreciating as soon as she buys it.
That’s why, despite everything you’ll read, Yahoo’s future won’t be decided Monday when the company announces it will buyTumblr. It will be determined by what Mayer and her team do with Tumblr, and many other acquisitions and homegrown initiatives, over the next two or three years.
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