Yahoo’s recent acquisition of Tumblr, the popular blogging site, presents an interesting scenario now prevalent in the tech scene. Yahoo is eager to pay a premium and remain competitive in the long run, even if the investment does not guarantee much profit right away. To attempt this, Yahoo shelled out $1.1 billion for Tumblr, which not too long ago was valued at about $800 million.
However, the deal does make sense when seen from Yahoo’s perspective. For one, Yahoo is seen as a company that is popular with an older generation. It could be risky for Yahoo to keep operating with that image. That Yahoo’s revenue has more or less remained stagnant around the $5 billion mark is another reason for Yahoo CEO Marissa Mayer to start pushing for new revenue streams. Also, another big advantage that Ms. Mayer believes the buyout will bring to Yahoo is that it will open up to a new user segment comprising mainly of the younger generations that are among Tumblr’s biggest user base.
Perhaps the biggest advantage that Tumblr’s acquisition will mean for Yahoo is that it will introduce the company to the thriving social networking medium. Companies like Google and Facebook have already proven there are boatloads of money to be made by way of ad revenue when there is enough of an audience enjoying a free service. The fact that Tumblr right now is on a steeper growth curve than Yahoo cannot be ignored, either. Also, with Tumblr under its belt, Yahoo will have the much needed presence in the mobile computing devices segment, where it has relinquished the lead to companies like Apple and Google. Mobile devices, such as smartphones and tablet PCs, have seen maximum activity in recent times, so much that companies are required to reorganize their operations to be centered around these in order to survive.
As for Tumblr, it has been in operation for six years and boasts of a user base of 100 million, a figure that is ever growing. However, that does not translate to big profits right now, given its CEO’s David Karp’s abject dislike to plastering ads and risk the experience of its users. The company that operates out of New York is run by 175 employees and boasts of some 108 blogs. The company recorded 117 million core users in March, which has nearly doubled from the 58 million users it had just a year ago, thereby making it among the faster growing start-ups. Apart from allowing users to create their own blogs, a unique aspect of Tumblr is that it also enables one to follow other’s blogs and share ideas. It’s somewhat like a marriage between blogging and social media.
Speaking of the acquisition, Yahoo CEO Marissa Mayer said, “Tumblr is redefining creative expression online,” before also adding: “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.”
Yahoo has stated it will remain out of the way of Tumblr, which will continue to operate as a separate entity. However, Yahoo does expect Tumblr to generate more revenue by way of ads. This could be tricky given Karp’s insistence of having just the bare minimum ads, as he believes the opposite could irk its core user base. Karp will continue to be at the helm of affairs at Tumblr while also being the biggest shareholder as well. There is much for Tumblr to gain from the deal; it can make the best of “Yahoo’s personalization technology and search infrastructure to help its users discover creators, bloggers, and content they’ll love,” the PR stated.
“Our team isn’t changing. Our roadmap isn’t changing. And our mission – to empower creators to make their best work and get it in front of the audience they deserve – certainly isn’t changing. But we’re elated to have the support of Yahoo! and their team who share our dream to make the Internet the ultimate creative canvas. Tumblr gets better faster with more resources to draw from,” Karp stated to the Tumblr community.
Ads began appearing at Tumblr from last year while the revenue that the company generated last year stood at a measly $13 million. A former Google Executive, John Saroff, believes the figure could easily be in excess of $108 a year.
Such a venture has paid off big for Google after it acquired YouTube. The mega video sharing site had cost Google $1.65 billion, but is estimated to earn Google about $4 billion in sales. Similarly, the ad revenue that Facebook generated in the first quarter stood at $219 million, while the same for Twitter has been $288 million.
Sovan Mandal is the senior tablet and tech corespondent for goodereader.com. He brings a international approach to news that is not just applicable to the North American market, but also Asia, India, Europe and others. Sovy brings his own writing flavor to the website and is interested in Science Fiction, Technology and Writing. Any questions, send an email