Sunday, 19 May 2013

Purchase of Tumblr in $1.1bn' by Yahoo

US media reports say that Yahoo's board has approved a deal to buy New York-based blogging service Tumblr for $1.1bn (£725m). The acquisition is expected to be announced as early as Monday. The deal was a "foregone conclusion" and was unanimously voted for by the board, reports citing sources close to the matter. If confirmed, it will be CEO Marissa Mayer's largest deal since taking the helm of Yahoo in July 2012. Neither Yahoo nor Tumblr responded immediately to requests for comment.

Under the terms of the acquisition, Tumblr would continue to operate as an independent business. The company is currently run by David Karp, a 26-year-old New Yorker who founded Tumblr in 2007, and he is expected to remain in his role. Analysts say that by acquiring Tumblr, Yahoo will gain a larger social media presence and enhance its ability to attract younger audiences in its battle with internet rivals.

Ms Mayer, a former Google executive, has already made a number of small acquisitions since taking over at Yahoo, but the Tumblr deal is expected to be the biggest. A $1.1bn price tag would represent a significant premium on Tumblr's $800m valuation when it last raised money from private investors. Tumblr combines elements of blogging with social networking, and its simple design has attracted millions of users since its launch.

According to its homepage, it now hosts 108 million blogs, with a total of 50.7 billion posts. It also has a significant presence on mobile devices. But despite its fast-growing user base it has struggled to make money, and has traditionally resisted advertising. It announced that limited use of adverts would be rolled out in April last year, but made just $13m in revenues for 2012. It is unclear whether a deal with Yahoo would result in more adverts on Tumblr.

Yahoo remains a giant in the internet world, with around 700 million visitors to its website every month. The majority of its revenues come from advertising. But it has limited mobile reach and lags behind Google in the search engine rankings. It also shed more than 1,000 jobs during 2012 and has long been divided over whether it should focus on media content or on tools and technologies.

Key Factors

Can Yahoo become hip again? In buying Tumblr, the company is trying to change it's reputation with hipsters.

Yahoo was once a name synonymous with the internet, but it's lead has been eclipsed by Google and it doesn't generate the same kind of buzz as Twitter or Facebook.

The odds of success may be stacked against it. Websites like are already reporting a backlash among Tumblr's user base in reaction to reports of the Yahoo acquisition.

Simply buying a company like Tumblr doesn't guarantee street cred. Remember when News Corporation bought the social networking website MySpace? MySpace was eventually sold for a fraction of the price News Corporation paid for it.

Yahoo will most likely want to integrate Tumblr into its services. The company is hoping it will boost traffic to its other properties, such as the photo sharing site Flickr. But the $1.1bn question is: will it also help boost revenue?

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