Is the acquisition a much-needed move into social media or a futile attempt at reinventing itself, Alasdair Reid asks.
In the normal course of events, it doesn’t really make a lot of sense to pay $1.1 billion for a company with revenues of $13 million in 2012 – as was the case last week when Yahoo! announced that it was snapping up Tumblr.
But, then, very few mergers and acquisitions (or initial public offerings, for that matter) in the digital sector ever conform to the simple rules that apply to the rest of the economy.
This deal is the first big statement by Marissa Mayer, who joined as Yahoo!’s chief executive in July 2012 with a brief to rediscover a sense of direction for the company.
It has arguably been adrift since the pivotal moment in February 2008 when it rejected Microsoft’s (in hindsight, rather generous) $44.6 billion takeover bid.
Since then, Yahoo! has parted company with a string of chief executives (Jerry Yang, Carol Bartz, Scott Thompson) in awkward circumstances as it has strived to recapture its former glories – and some now read a sense of desperation into its every move.
It’s prone to paying silly money, critics say, in a quixotic bid to reinvent its challenger brand credentials at the cool end of the technology marketplace.
Adding Tumblr to its corporate stable may do just that, of course – and, in particular, it urgently needed to get into the social media game.
And Yahoo!, arguably, is buying not just a company here, but also its founder, David Karp, who is staying on to run Tumblr as a Yahoo! subsidiary. Karp is highly regarded as something of a digital shaman, not least in influential sectors of the financial community.
Tumblr has some impressive user numbers going for it – by some measures, it is the tenth-most-popular site on the web.
It began selling advertising space on its main pages – or, as the company calls it, "sponsor products" – this time last year. Before that, Tumblr featured non-paid posts on both Spotlight and Radar. Since launch, ads have started at $25,000 and go up from there.
It can be a fickle market – think Flickr or ask AOL about Bebo. But if Yahoo! can stick to its promise to not "screw up" Tumblr, will it be an inspired acquisition?
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