The cost of cool: Yahoo swaps cash for cachet in Tumblr deal

Tumblr CEO David Karp is worth US$250 million after the sale of his popular blogging platform to Yahoo. AAP

This is the ultimate stuff of hipster dreams. Despite the protestations of user defections, Tumblr bloggers couldn’t help but be beguiled by the attentions of 37-year-old Yahoo CEO Marissa Mayer, whose company acquired the popular blogging platform for US$1.1 billion. This is the parent they wished they had: educated, rich and chic-geek dressed.

Hipster Tumblr CEO David Karp, 26 years old and perhaps not so well educated (he didn’t finish high school), obviously thought so. But then, all of the other grown-ups, including Facebook’s Mark Zuckerberg and Google’s Sergey Brin, had turned down Karp’s approaches to buy this premier site of teenage hangouts.

Tumblr brings traffic, mobile and a cooler image

Mayer paid handsomely for the site, with US$250 million of the US$1.1 billion purchase price going to Karp. Mayer has also claimed that she will keep the site as it is, including the NSFW (not suitable for work) content (more on this later) and will “not screw it up”.

And why would she? Tumblr’s numbers speak for themselves: 86 million blogs with 184 million unique visitors, and 12.1 billion pageviews last month. (However, it is worth taking some of these numbers with a pinch of salt – they vary greatly depending on the source.)

Tumblr is also set to make money this year. Not an astronomical amount, by any means: the site has had a limited amount of advertising on the site and does not generate significant revenue. But being part of Yahoo may provide more avenues for advertising and monetisation.

For Yahoo, survival comes first; money is a secondary concern. Survival depends on staying relevant and, for most companies that have made their business on the web, this means increasing your audience and succeeding on mobile. Growing one’s audience, especially the sort of audience that Tumblr brings, would have been next to impossible through Yahoo’s existing platforms.

The rapid move to mobile, especially in competing against Google and Facebook, has also presented a challenge. Some progress has been made. The mobile version of photo site Flickr has got the attention it needs and is starting to make headway, especially from threats posed by Instagram and its owner, Facebook. Tumblr’s extremely popular mobile applications again bring Yahoo a more immediate presence on that platform.

Making money

From the perspective of income, Tumblr’s first quarter revenue of US$13 million will, in all likelihood, leave them short of their target of US$100 million for this year. This may not matter so much in the short term, as Yahoo doesn’t really have to make much money from Tumblr to justify its purchase. It really only has to make more money than it would have done leaving the money in investments, which won’t be hard. The only thing lost is the potential opportunity of using the money to buy something more worthwhile.

What really matters are the users. They represent a potential goldmine of opportunities for Yahoo and Yahoo’s advertisers – at least in the short term.

What about the content?

Although not on the level of 4chan, there is a great deal of pornography and other adult content on Tumblr, with some estimates putting it at around at least 11% of all of the blogs containing pornographic images and content. Of other types of undesirable content, Tumblr has acted in the past to ban pro-anorexia and self-harm blogs.

Part of the challenge that Yahoo faces in the short term is that any moves to act against unreasonable behaviour on Tumblr will be construed as evidence that somehow it is acting to clean up the content. This may change the character of the site for those who use it. Indeed, Yahoo may start getting pressured by advertisers to do so – especially if that is how Yahoo intends to drive revenues through the site.

Will it work?

It seems that at the moment, Mayer is doing all of the right things. So far, the proof is that Yahoo stock has risen 70% since she became CEO. The jury is still out whether she can completely turn Yahoo’s image around, even with the purchase of companies like Tumblr, but she has definitely stopped the downward trajectory Yahoo was on before she joined.

I suspect that the purchase of Tumblr will be seen as a smart move on Mayer’s part, eventually even by Tumblr’s bloggers. For the moment at least, some may need more convincing.