Rumor Mill Was Right: Yahoo to Buy Tumblr for $1.1 Billion in Cash

Rumor Mill Was Right: Yahoo to Buy Tumblr for $1.1 Billion in Cash image tumblr logo 300x300tumblr logoAcquisitions by big tech companies is always an enjoyable subject to read and talk about. I still remember all of the talk about Facebook’s purchase of Instagram back in April of last year. There is plenty to talk about when covering acquisitions in terms of strategy, but it’s also interesting to discuss whether the investment will pay off. It has been confirmed now that Yahoo will buy Tumblr for $1 billion.

$1 Billion for Blogs

Ten years ago Google paid an undisclosed amount of money for Pyra Labs’ Blogger. Today, Yahoo is spending $1.1 billion in cash for another popular blogging service: Tumblr. The rumor mill had been mentioning a possible purchase of Tumblr by Yahoo for a week or so. Turns out they called this one right. According to Alexei Oreskovic and Ben Berkowitz at Reuters, this $1.1 billion deal “will use about one-fifth of Yahoo’s $5.4 billion in cash and marketable securities.” That’s a large chunk of Yahoo’s cash and it’s obvious that Marissa Mayer and other decision makers see this purchase as going a long way for the company. There haven’t been entirely official statements released by Yahoo or Tumblr, but the deal will most certainly go through.

Why Tumblr?

Marissa Mayer has been making a variety of moves to bring Yahoo into a more intimate relationship with internet users. They changed their homepage and have more integration with Twitter and other social media sites. They’ve also changed how their ads work and are not shy at all about being in the news.

As Michael J. de la Merced, Nick Bilton, and Nicole Perlroth report for the New York Times, this is the seventh deal “since Ms. Mayer defected from Google last summer” and it’s also “her biggest yet.” Ultimately, as these reporters write, the purchase of Tumblr “is meant to give [Yahoo] more appeal to young people, and to make up for years of missing out on the revolutions in social networking and mobile devices.”

When put in those terms, it becomes even more obvious to me that Yahoo really did miss out on connecting with younger users and the explosion of social media and mobile in recent years. I can’t really recall hearing about Yahoo before Mayer took the reins of the company.

Will it Work?

There is a lot of opportunity for Yahoo to grow its advertising capability with Tumblr. Businesses and agencies will definitely want to keep an eye on how Yahoo manages this purchase. According to Douglas MacMillan at Bloomberg, since 2007, “Tumblr grew to log more than 13 billion global page views in the past month.” Advertisers are just recently being offered targeted placement ads on the service, and I have no doubt in my mind that Yahoo will focus on this.

Despite all of this possibility, Yahoo still has to be careful. Business and agencies would love the ability to tap into the marketing possibilities with a Yahoo Tumblr but going too fast could make the investment backfire. Many users on social media and Tumblr itself are rather angry. Neha Prakash has a great write up and collection of angry posts over on Mashable. Lots of users are claiming that this is “the end” of Tumblr and everything it once was.

At the same time however, Peter Kafka at All Things D writes that Yahoo is promising “not to screw it up” with the Tumblr acquisition. It appears that Yahoo will be letting Tumblr operate as independently as it can. I think that’s the right move for an acquisition this large. Yahoo needs to take their time and show to businesses and agencies that the platform has Yahoo’s full support and that it will work in regards to reaching targeted audiences with its ads.

Is Yahoo’s Tumblr acquisition going to work for Yahoo or will the service suffer under Yahoo’s stewardship? What do you think?

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