Yahoo Acquires Tumblr for $1.1 Billion

Yahoo is going to acquire the online blogging forum Tumblr for $1.1 billion as part of CEO Marissa Mayer’s plans for revitalizing the Internet icon’s image that seems to have taken a beating over the years. The deal announced on the last week of May this year, symbolizes the boldest move made by Mayer after relinquishing her post in Google some 10 months back. The current deal has acquired the reputation of being Yahoo’s most expensive acquisition since it acquired online search portal Overture a decade ago for $1.3 billion in cash and stock.

Yahoo will go for all-out cash payment for Tumblr, using some its residual stash from a $7.6 billion premium that it earned last year from selling more than half of its shares in a Chinese Internet company Alibaba Holdings Group. The acquisition of Tumblr will consume about one-fifth of the $5.4 billion in revenue that Yahoo generated in its accounts at the end of March 2013.

Yahoo has also promised to maintain the independence of Tumblr as a brand and will allow it to function independently as a distinct business entity by retaining majority of the erstwhile managerial staff including founder and current CEO David Karp. Mr. Karp, who quit high school to focus on computer programming, ended up continuing his education at home while taking classes in Japanese and working on developing betting software. Later, he took up a job at a parenting website called Urban Baby. After CNet acquired Urban Baby in 2006, Mr. Karp set out in building his own web-based development service called “David-ville” before choosing to create a media outlet for personal expression, which resulted in the creation of Tumblr.

Tumblr, an online blogging service, which was started six years back, shall now play a fundamental role in Ms. Mayer’s attempt to restructure Yahoo. In order to crystallize her restructuring plan, Ms. Mayer left a highly triumphant 13-year career at Google, which she assisted in surpassing Yahoo as the world most influential Internet Company. Since taking over the charge at Yahoo, Ms. Mayer has concerted her efforts on bettering employee morale, recouping services and bringing in more technical competence through a succession of undersized acquisitions that have jointly cost less than $50 million to the company. If this deal pays off the way Ms. Mayer wants it to, Tumbler could help Yahoo finally elevate its stock price to $33. That would be a major achievement because many shareholders felt bitter on Yahoo after it squandered an opportunity under the CEO and co-founder Jerry Yang to sell the entire company to Microsoft for $33 per share. Yahoo shares spent more than four years trading below $20 before the current surge that elevated the value to $26.52 through the past few weeks. The deal could potentially backfire too if Yahoo’s effort to make more money isolates a Tumblr user base that has so never been subjected to barely any advertising during its six-year history.

Ms. Mayer is betting that Tumblr will provide Yahoo with a captivating proposition to rope in more visitors and advertisers on Smartphones and tablet computers. The rapidly growing market of Smartphones and tablet PCs is likely to assume greater importance during the next decade as people are increasingly viewing digital content on mobile devices instead of laptop and desktops. Tumblr could help Yahoo recapture some of the previous vibes that it shared with teens and adults in their early 20s, a demographic that it failed to woo in recent years after it fell behind the steep rise in technical innovations and struggled to develop compelling services like Facebook and Google. Tumblr surfaced as a chic online hangout by rendering a service that makes it simple to share photos, videos, blog posts and other content in a captivating medley of digital media. The service boasts of gathering more than 50 billion posts from 108 million blogs. Tumblr users depend upon on a dashboard to identify the type of blogs that they want to follow and also have tools to share the posts that amuses them. Besides offering one of the best-rated mobile apps, Tumblr also manages one of the world’s busiest websites, consisting of 75 million daily posts about everything from politics to life-style issues. Advertising has been a missing ingredient in Tumblr’s web-portals, much like other online services in their early stages of progression, focusing mainly on building a loyal audience base before turning their attention to money making.

Tumblr on its part will remain headquartered in New York and led by Mr. Karp, 26, who may now look up to the guidance of Ms. Mayer. The startup has about 175 employees and there are plans to hire more. Mr. Karp’s share from the Yahoo takeover bid is about $275 million. The majority of the remaining part of the money will be paid to the venture capitalists like Sequoia Capital, Greylock Partners, and Spark Capital that spent about $125 million into financing the deal with Tumblr.