Yahoo on Tumblr: We won't 'screw it up'

Yahoo will now have to figure out how to grow Tumblr revenue without alienating its user base

Yahoo has confirmed widespread reports that it will acquire the popular blogging service Tumblr, and also promised not to "screw it up." The deal is worth about US$1.1 billion, nearly all in cash, and is expected to close in the second half of this year.

"Per the agreement and our promise not to screw it up, Tumblr will be independently operated as a separate business," Yahoo said in a statement on Monday. Tumblr CEO and founder David Karp will remain in that position and its "product, service and brand will continue to be defined and developed separately with the same Tumblr irreverence, wit, and commitment to empower creators," the statement added.

In a blog post on Monday, Karp called the deal "awesome" and sought to ease any concerns his employees may have. "We're not turning purple," he wrote. "Our headquarters isn't moving. 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."

With the acquisition, "Tumblr gets better faster," he added, signing off the post, "[expletive] yeah, David."

Yahoo is hoping Tumblr's fast growth and widespread appeal will give it a fresh foothold in the competitive social media advertising market. Tumblr has 120,000 new users sign up each day and 300 million unique visitors monthly, Yahoo said.

While Yahoo users skew older, Tumblr's audience is "the youngest of any site at scale," Yahoo CEO Marissa Mayer said during a conference call on Monday.

Combined, the companies will boost Yahoo's audience by 50 percent, reaching more than 1 billion visitors per month, according to the announcement.

Both companies are also "intensely focused on mobile," and focused on delivering "advertising "that is as good as the content itself and seamless with the experience," Mayer said.

There are a number of places on Tumblr that seem appropriate for more ads, such as the dashboard, Mayer said. Yahoo will also look to work with Tumblr bloggers who would give permission for ads to run on their sites, she added.

Yahoo expects that new revenue from Tumblr "will start to materialize in a major way in 2014," Yahoo chief financial officer Ken Goldman said on the conference call. The purchase price was justified based on a "detailed analysis" of factors such as Tumblr's user base growth, Goldman said.

Meanwhile, Tumblr will gain access to Yahoo's "sophisticated personalization technology" and with added investment its team will be able to release products faster, according to Mayer. In turn, Yahoo will benefit from rich Tumblr content it can integrate with its personalized news streams, she said.

While the companies will "obviously" be integrated on the back end infrastructure level, Yahoo is keen on maintaining some separation between the two.

"Part of our strategy here is to be Tumblr be Tumblr," Mayer said. "In terms of integration we plan to brand and grow Tumblr separately from Yahoo. We will not have Yahoo branding on the Tumblr site."

Yahoo may be wise to emphasize at the outset that it plans to handle Tumblr with kid gloves.

The service has a solid base of devoted users who are passionate about its creative and community-building power and their fear of the effects of commercialization under Yahoo is palpable, according to Gartner analyst Andrew Frank.

"They fear loss of control over the interface, over privacy, and over the freedom of expression in general," Frank said via email.

The price Yahoo is paying for Tumblr is more than 84 times the $13 million in revenue Tumblr generated last year, a considerable multiple in any acquisition.

A big challenge for Yahoo, therefore, will be to determine how to boost the revenue of Tumblr, which is currently very light on ads, without ruining the experience for users, according to Forrester Research analyst Zachary Reiss-Davis .

This is just the latest attempt by Yahoo to jump-start its business by scooping up a hot social media property, and it remains to be seen what reward Yahoo will reap from this deal.

Deals that didn't deliver the expected results include Yahoo's acquisitions of social bookmarking site Delicious, blog social network MyBlogLog and enterprise email vendor Zimbra.

It would be premature to dismiss Yahoo's decision to purchase Tumblr as merely a public-relations move meant to give it an injection of cool, or a way to pump out more advertising, according to one observer.

"Why Tumblr and why now are sensible questions and lack clear answers save for the common meme that Yahoo is trying to 'buy hipsters,'" Gartner analyst Allen Weiner said in a blog post. "While that may be fun fodder for the Twitter cybergabfest, Mayer and Yahoo no doubt have some concrete plans beyond PR value and such pat answers as 'because they were available' and 'we bought Tumblr before one of our competitors did.'"

"Tumblr makes sense as a content management-meets-curation platform," Weiner added. "Such a move would allow consumers, brands and marketers (i.e. content marketing) to curate Yahoo's syndicated content (original and licensed) and use those pictures, videos and stories to create personal and professional Tumblr pages."

This strategy would give Yahoo "a few revenue paths including a freemium service option and a venue for targeted advertising," as well as get "more mileage" out of its Flickr photo-sharing service, Weiner wrote.

While she didn't sketch out such a vision on Monday's conference call, Mayer did cite Tumblr's content creation tools as a key reason for the acquisition, and said the company indeed plans to explore how to integrate Tumblr with Flickr.

(With reporting by Juan Carlos Perez in Miami and Zach Miners in San Francisco.)

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

This story, "Yahoo on Tumblr: We won't 'screw it up'" was originally published by IDG News Service Boston Bureau .

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