All aboard the Yahoo acquisition train
The Wall recently carried the following article from me, commenting on Yahoo’s recent acquisition of Tumblr.
Marissa Mayer certainly knew what was coming when Yahoo announced its $1.1bn (£723m / 857m euros) purchase of blogging platform Tumblr earlier this week. Rather than waiting for the critics to pounce, she issued a rather succinct, clear and highly quotable message proactively: “we promise not to screw it up”.
This might have seemed like a rather defensive move from Mayer – and it certainly isn’t the norm for this kind of statement – but she knew that the focus would immediately jump to Yahoo’s track record when it comes to acquisitions, which isn’t great. The internet giant has snapped up a number of startups, including personal website creation tool GeoCities, internet radio company Broadcast.com and more recently social bookmarking service Delicious, none of which were nurtured into an outstanding success, to say the least.
The acquisition that has seems to have drawn the most parallels with the Tumblr deal is that of Flickr – an amazingly successful photo sharing social media start-up with a passionate and large user base, which Yahoo was rumoured to have paid about $35 million for in 2005.
At the time of Monday’s announcement, critics noted that while Yahoo didn’t screw Flickr up, it also didn’t really give it any attention either.
However, it seems that Yahoo was prepared for this, and just a few hours later a new and improved Flickr photo platform launched, with Mayer, stating her ambition was to make Flickr “awesome again,” with “bigger images”, creating a user experience that is “more immersive, more expressive.” And it does look better, slicker, certainly an improvement on the previous version. Round one to Yahoo.
The issue of Yahoo picking up Tumblr and doing nothing with it is not, however, the key concern. What is, of course, is advertising. Tumblr’s stance on this has always been fairly clear to date – “We’re pretty opposed to advertising,” David Karp, the founder of Tumblr, said three years ago. “It really turns our stomachs.” So the acquisition of the platform by Yahoo, which currently generates 76% of its revenue from advertising, hardly seems like a match made in heaven.
Given that Tumblr’s 2012 revenue was just $13m, according to a report by Forbes magazine, analysts have already suggested that Yahoo has overpaid for the deal, and Mayer will clearly need to ramp up the monetisation of the platform in order to make the price tag worth it. However, she’ll need to walk a tightrope between the need to monetise and, on the other side, upsetting Tumblr’s users by showing them too many ads, especially bad ones.
Mayer has tried to allay these concerns by describing the advertising planned for the site as ‘meaningful’, following the form and function of the platform. And it could be that if done correctly, relevant ads could actually add to the user experience. But it will be a real balancing act to get this right, and Mayer will need to tread very carefully indeed – as we’ve seen from Facebook, brand posts done well can feel native and unobtrusive, whereas bad ones feel like blatant advertising.
What makes the price tag, and the risk, worth it for Yahoo? One major gain for Yahoo in this deal is in relation to mobile. Companies like Facebook and Google still trying to crack it, and this acquisition helps Yahoo take hold of a large and engaged mobile audience immediately. It now has potential access to a hoard of young mobile users – an audience that marketers desperately covet. More than half of Tumblr’s users engage with the mobile app an average of seven sessions per day, and with Yahoo’s audience large but aging, Mayer has essentially bought a whole new generation of consumers.
One positive piece of news is that Karp will continue as chief executive officer. At the time of the announcement, Karp felt it necessary to reassure people that Tumblr would not be “turning purple”, in reference to Yahoo’s corporate colours. He continued “Our headquarters isn’t moving. Our team isn’t changing. Our roadmap isn’t changing.” Mayer will need to back this up by giving Karp the freedom to grow and innovate the Tumblr platform, allowing him to maintain the brand identity that has made Tumblr so popular to date.
Only time will tell whether Tumblr will revitalise Yahoo, or Yahoo will turn Tumblr into a corporate shadow of its former self – concerns over Tumblr’s sanitisation have not gone unnoticed. Personally I’d favour the former. The eyes of the entire industry will be closely watching to see what Mayer makes of it and she will be determined to succeed. And it’s safe to say this isn’t the last we’ve seen of the Yahoo acquisition train – one thing’s for sure, at the helm of Yahoo, Mayer certainly does not plan on resting on her laurels.