20 May 2013

Yahoo! buys Tumblr in bid to recapture some cool

It is young, hip and has more than 100 million users around the world. Now Yahoo! has agreed a $1bn dollar deal to buy Tumblr – will it recapture its long lost cool?

Yahoo and Tumblr logos (getty)

Yahoo’s! board met on Sunday and approved the all-cash deal to buy one of the fastest growing social media sites on the web: an official announcement will be livestreamed from New York as soon as Monday afternoon.

The acquisition is the work of Yahoo! CEO Marissa Mayer, the hot-shot Google executive who was appointed 10 months ago to turn the company’s fortunes around. So far her purchasing deals have been small scale, based on technology and talent. This is in a whole different league.

Ms Mayer’s hope is that Tumblr could give Yahoo that credibility and relevence it so desperately needs – without alienating the Tumblr community, which has already begun expressing alarm about the tie-up.

The story of Tumblr is almost one of overnight success: founded just over five years ago by the then 21 year old David Karp, from his apartment in New York. Its growth was astonishing, from a handful of users to more than 117 million around the world, according to the most recent estimate by comScore.

It is easy to use: anyone can set up a blog and post copy and photographs within minutes. It hosts a powerful search engine for similar content and internal sharing has mushroomed, with more than 12 billion page views last month alone.

Before Marissa Mayer, Yahoo was the place where great startups went to die. Christina Warren, Mashable

Unlike Yahoo!, it is highly popular among younger people, especially teenagers: it is currently the 24th most popular site in the United States. Even the White House wants to be part of it. As for Karp, he is generally hailed as one of the brightest, most visionary thinkers in the internet world.

What it lacks, however, is money. It generates little income of its own, and Karp has repeatedly insisted that he is “pretty opposed to advertising”. Last year it made just $13m, despite its huge database of personal information about users, and its capacity to turn content viral.

Yahoo! badly needs a new source of advertising: as the Wall Street Journal points out, it has been spending far more than it gets in. But will this deal prove the clincher?

Yahoo’s! own track record is hardly stellar: its earlier purchases of sites like Geocities and Flickr have not exactly gone well. As Mashable’s Christina Warren put it: “Before Marissa Mayer, Yahoo! was the place great startups went to die.”

Yet now, the sheer size of this acquisition – more than $1bn – is on a par with recent big-ticket deals. Google splashed out $1.65bn for YouTube, while Facebook splurged $1bn on Instagram.

But if the young, hip Tumblr community is freaked out by the possibility of advertising emblazoned all over their blogs, they could take heart. Karp’s buyout deal will leave him in place for at least the next four years: his still, his passion, and his engagement should continue to shape the company’s future.

Instagram users were mollified when Facebook allowed the old team to carry on running things independently, while there are no advertisements on Instagram to alienate snap-happy hipsters. An example, perhaps, to follow.

Marissa Mayer has a plan for Yahoo!: new talent, a new culture, a new community. And she is willing to bet $1bn on her strategy for success.

Felicity Spector writes about US affairs for Channel 4 News