Yahoo!’s Tumblr acquisition continues mobile push

July 2013 | FEATURE | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Yahoo! announced in May that the company had entered into a definitive agreement to acquire online content sharing site Tumblr for $1.1bn in cash.

In a statement, Yahoo! noted that, as per its promise “not to screw it up”, Tumblr would continue to be “independently operated” and that Tumblr’s co-founder David Karp will continue to operate as chief executive officer.“Tumblr is redefining creative expression online,” said Yahoo! chief executive officer Marissa Mayer. “On many levels, Tumblr and Yahoo! couldn’t be more different, but, at the same time, they couldn’t be more complementary. Yahoo! is the internet’s original media network. Tumblr is the internet’s fastest-growing media frenzy.” Mr Karp, who founded Tumblr in 2007, said he was “elated” to have the support of Yahoo! and, in a message to users, he noted “Tumblr gets better faster with more resources to draw from.”

The deal, which is expected to close in the second half of 2013, is the latest in a string of acquisitions Yahoo! has made under the stewardship of Ms Mayer. In an effort to reverse years of stagnation Ms Mayer launched a re-tooling of Yahoo! soon after she arrived at the company in July 2012. Yahoo!’s mobile presence was an area which was identified as requiring greater emphasis. Accordingly, the company has completed 10 acquisitions in the mobile market, including start-ups Stamped, OnTheAir, Snip.It, Propeld, Astrid and others. The purchase of Tumblr is the largest transaction completed under Ms Mayer’s tenure, topping the $30m Yahoo! paid for the start-up Summly in April.

Micro blogging site Tumblr has a vastly expanding user base and enjoys more than 300 million unique visitors monthly, with 120,000 new members signing up every day. Tumblr’s users also make roughly 900 posts a second, with 24 billion minutes being spent on the site every month. Crucially for Yahoo! more than half of Tumblr’s visitors use the company’s mobile app, at an average of seven sessions a day.

Yahoo! expects the acquisition of Tumblr to expand its audience by more than 50 percent to over a billion monthly users and to grow traffic by approximately 20 percent. Furthermore, Tumblr, which is very popular with younger demographics, particularly those in the 18-34 age bracket, gives Yahoo! access to a customer base significantly younger than its own – and one favoured by advertisers.

However, the purchase, which Ms Mayer has described as being a “unique opportunity”, also represents the biggest challenge Yahoo! has undertaken in some time. Although Tumblr helps to plug the gaps in Yahoo!’s portfolio by offering a burgeoning social network, Tumblr’s financial performance has left much to be desired. Throughout its six year existence, Tumblr has concentrated its efforts on developing its user base rather than making money. Mr Karp had previously noted that he was “pretty opposed to advertising”. To that end, Tumblr only introduced advertising in 2012, generating just $13m in revenue. Analysts have suggested that Tumblr could in fact generate $108m or more per year in advertising revenue.

In a statement on Ms Mayer’s newly established Tumblr page, she noted that Tumblr will benefit from Yahoo!’s “personalisation technology” and search infrastructure. As personal data is at the heart of Yahoo!’s ability to sell advertising across its network, Ms Mayer also noted that “the two companies will also work together to create advertising opportunities that are seamless and enhance the user experience”.

But the relationship between those advertisers and Tumblr may yet prove tricky. Tumblr’s terms of service note that the site permits users to upload pornographic material to their sites provided that it is clearly tagged as such. Although such material is not as prevalent as it once was on Tumblr’s platform, some of Tumblr’s most popular sites still often contain material that is of a racially insensitive or pornographic nature. Ms Mayer said on a conference call that “We really think the richness and breadth of the content – even though it may not be as brand safe as on our site – is really exciting and that will help us reach more users.”

If it is to capitalise on Tumblr’s credibility in the youth market and the company’s mobile presence, Yahoo! must tread a fine line between attracting advertisers and not alienating users. Nevertheless, Yahoo!’s association with Tumblr has already created disgruntled users. Rival blogging site WordPress reported that more than 72,000 users imported their blogs from Tumblr within an hour when news of the Yahoo! buyout emerged, although a mass exodus of users is not expected. Mr Karp told concerned users that Tumblr was “not turning purple” – alluding to Yahoo!’s corporate colour scheme – while Ms Mayer said that Yahoo! would not place advertisements on Tumblr bloggers’ sites without their permission, or smother the site with Yahoo! branding.

It has been around 11 months since Ms Mayer was brought in to revitalise Yahoo!, and thus far her techniques seem to be working. By acquiring Tumblr, Yahoo! has purchased itself an exciting, relevant company and a huge slice of ‘cool’. It is crucial for their shared future that Yahoo! doesn’t “screw it up”.

Richard Summerfield