In a huge all cash deal the Yahoo board of directors has approved purchase of social media giant Tumblr for 1.1 Billion dollars. For those not familiar with Tumblr, it is a blogging site that lets users post and share content with others. It is highly customizable, and incredibly popular, with about 75 million posts a day. This is a huge move for the internet powerhouse Yahoo, and only the beginning of changes being made by their new CEO Marissa Mayer. Buying Tumblr is, according to Mayer, “the stake in the ground of what her strategy is going forward for Yahoo.”
As part of the deal, CEO of Tumblr David Karp will get to stay on for a term of at least four years to retain control over most of Tumblr. However changes are expected to be made to Tumblr’s advertising system, which although has generated a lot of revenue, isn’t doing as much as it could. Ad’s led to $13 million in revenue this year, and with Yahoo’s help could be as high as $100 million this year, experts suggest.
Both sides stand to gain from this deal. Tumblr gains a large partner that can help drive its business, especially where it needs help (advertising). But a much more significant benefit exists for Yahoo, the audience it will gain. Tumblr’s audience is young, hip, cool, and relevant to today’s market. Although Yahoo was the site to be on for many in the 90’s, Google and Facebook now own most of the youth central sites such as YouTube and Instagram. Ken Goldman, CFO of Yahoo said that Yahoo’s biggest issues were lack of marketing and to be “cool again.”
“One of our challenges is we have had an aging demographic,” said Goldman. “Part of it is going to be just visibility again in making ourselves cool, which we got away from for a couple of years.”
Gaining this audience will put Yahoo back on the map. Paired with other recent upgrades like Dropbox integration and removing attachment limits on emails, Yahoo will become a force to be reckoned with. Mayer knows what works; after all, she was one of the first 20 employees at Google. Since she took over in July of 2012, Yahoo’s stock has grown significantly. Over 20 small companies have already been acquired by Yahoo, and they have made significant overhauls of their applications, paired with cutting costs to improve overall revenue.
