Yahoo is making a mega-acquisition in social media. The search engine prince has agreed to buy the hip Tumblr blogging service for $1.1 billion, and is promising "not to screw it up."
In fact, Yahoo is so determined "not to screw it up" that it has agreed to allow Tumblr to operate independently as a separate business. Tumblr CEO David Karp will remain at the helm. Yahoo also said the product, service and brand will continue to be defined and developed separately with "the same Tumblr irreverence, wit, and commitment to empower creators."
"Tumblr is redefining creative expression online," said Yahoo CEO 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. Both companies are homes for brands -- established and emerging. And, fundamentally, Tumblr and Yahoo are both all about users, design, and finding surprise and inspiration amidst the everyday."
Tumblr boasts more than 300 million monthly unique visitors and 120,000 sign-ups every day. That makes it one of the fastest-growing media networks in the world. What's more, Tumblr sees 900 posts per second and users spend 24 billion minutes on site each month. Tumblr also has a strong play. More than half of Tumblr's subscribers use the mobile app, with an average seven sessions per day.
As Yahoo sees it, Tumblr's popularity and engagement among content creators, curators and audiences of all ages brings a significant new community of users to its network. The combination of Tumblr and Yahoo is expected to grow Yahoo's audience by 50 percent to more than a billion monthly visitors, and to grow by approximately 20 percent.
Tumblr brings 50 billion blog posts -- and 75 million more arriving each day -- to Yahoo's media network and search experiences. But Tumblr also sees benefits. For example, Tumblr can deploy Yahoo's personalization technology and search to help its users discover creators, bloggers, and content that caters to their tastes. The two companies will also work together to create advertising opportunities.
Making the Turnaround More Difficult?
Rob Enderle, principal analyst at the Enderle Group, said acquisitions like this have between a 10 percent and 20 percent success rate, so it's going to be difficult for Yahoo not to screw it up.
"Tumblr already has ads on the service but it's not profitable, so that means they are going to have to increase the ad rate to get the revenue up," Enderle told us. "It's a social network that deals with a relatively young demographic. Young demographics age out of the service and tend to be very fickle in terms of the services they occupy, so retention becomes a problem."
Tumblr's staff is also young and is about to come into plenty of money. Keeping the young staff focused -- or perhaps even keeping them in the company -- is going to prove difficult, Enderle said. Then there's just the timing of the acquisition.
"It's generally advised that you don't do any acquisitions until after you've completed a turnaround because you don't want to increase the complexity of the firm. You want to decrease complexity until you are out of the woods," Enderle said. "Yahoo isn't out of the woods yet. So this just makes it more difficult for them to complete the turnaround successfully."