Yahoo to Stake Future on $1.1 Billion Tumblr Purchase

Yahoo Tumblr

What began as rumors late last week morphed into certainty on Sunday as AllThingsD reported that the Yahoo board had approved a $1.1 billion cash deal to purchase social blogging platform Tumblr. Yahoo is expected to publicly announce the deal, as well as detail its plans for the future of the two companies, at an event today in New York.

Update: Yahoo CEO Marissa Mayer officially confirmed the deal via a Tumblr post this morning. The company also issued a press release.

We promise not to screw it up.  Tumblr is incredibly special and has a great thing going.  We will operate Tumblr independently.  David Karp will remain CEO.  The product roadmap, their team, their wit and irreverence will all remain the same as will their mission to empower creators to make their best work and get it in front of the audience they deserve.  Yahoo! will help Tumblr get even better, faster.

Yahoo was not alone in its interest in Tumblr, founded in 2007 by CEO David Karp and former CTO Marco Arment. Facebook, Google, Microsoft, and Twitter all reportedly made offers to purchase the service at different points throughout 2013.

Yahoo Tumblr David Karp

Tumblr Founder David Karp

As part of the deal, Mr. Karp will assume a position at Yahoo for at least four years and continue to manage Tumblr. A major sticking point in the sale negotiations was Mr. Karp’s insistence that Yahoo take a “hands-off” approach to Tumblr, allowing it to continue without the forced integration of Yahoo branding or other Yahoo properties.

Those assurances from Yahoo CEO Marissa Mayer were not enough to calm the fears of thousands of Tumblr users, who responded to the acquisition rumors with worry and anger. Many users took to the service over the weekend to post emotional reactions. “I can actually feel the tears in my eyes,” and “Bye, never signing into Tumblr again…” were typical responses.

Others decided to simply abandon the service. WordPress, a competing blog platform, allows users to switch from another service and import their blog posts. Normally, between 400 and 600 posts are imported each hour but Matt Mullenweg, WordPress’ CEO, stated last night that the hourly rate of imports jumped to over 72,000 in the wake of the Yahoo-Tumblr news.

As for Yahoo’s plans for the service, little is known thus far beyond the company’s desire to reach a younger demographic. The company’s struggles over the past several years have left it outside the periphery of a new generation of online users. As evidenced by some posts on the service, many Tumblr users don’t even know what Yahoo is.

According to AllThingsD, “Yahoo is looking to bolster its strong set of existing media offerings to appeal to a different demographic and also get into the social space via consumer-based software solutions that are both elegant and easy to use.”

Yahoo Tumblr Mayer

Yahoo CEO Marissa Mayer

The deal is the largest by the company since ex-Google executive Marissa Mayer took the helm as CEO last July. It may also be the deal that makes or breaks both her tenure and the future of the company. Sources familiar with Yahoo’s plans to purchase Tumblr said that Ms. Mayer knew the deal would be “the stake in the ground of what her strategy is going forward for Yahoo.”

If nothing else, the deal will bring an influx of traffic, primarily young, to Yahoo’s books. Tumblr was visited by 117 million users in April, and the company advertises that it hosts 50.9 billion posts across 108.6 million blogs.

Revenue is another matter. Like many startups, the company has found it difficult to incorporate advertising without alienating its user base. Recent attempts to introduce advertising on the blog-creation side of the service have produced modest results thus far. The company reported $13 million in revenue last year, and claims that it could reach $100 million this year as revenue-generating efforts continue to roll out.

If Yahoo can successfully manage the integration of Tumblr’s user base into its established line of properties, however, the revenue generated by Tumblr will be insignificant compared to the broader benefits to the aging online property. Foreshadowing the company’s deal with Tumblr last week at the JP Morgan Global Technology Conference, Yahoo CFO Ken Goldman told the audience that one of the company’s challenges is “an aging demographic.” Reaching out to the coveted 18-to–24 demographic, a practice which Yahoo “got away from for a couple of years,” could make the company “cool again.”

But the purchase of a popular service filled with users inherently distrustful of Yahoo will be a major challenge for the company. A Yahoo source speaking with AllThingsD succinctly summarized the company’s approach: “We’re going to be very careful here.” Another source at Tumblr added: “This will be a very delicate dance, since so much could go wrong if done without care.”

Investors are apparently waiting to hear more from Yahoo officially before making judgments on the news. The company’s stock (YHOO) is holding steady in pre-market trading, down 0.23 percent as of the time of this article.

One thought on “Yahoo to Stake Future on $1.1 Billion Tumblr Purchase”

Avatar douglas aalseth says:
They “promise not to screw it up.”. That’ is all fine and good but what happens in a couple of years when Yahoo is bought out by Google or Facebook? I’m not dropping off of Tumblr just yet, but, like when I get on a budget airliner, I’ll make sure I know where the nearest exit is.
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