Marissa Mayer takes a big gamble with audacious Tumblr acquisition.
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Yahoo!’s US$1.1 billion cash acquisition of the blogging website Tumblr in May this year may not quite be the last role of the dice for the online publisher, but if it fails it will most certainly end the promising reign of its current president and CEO, Marissa Mayer.
So confident is Mayer of her ability to handle her new purchase that among her first words on the deal was the statement “we promise not to screw it up”.
While that promise was made to Tumblr users, many of whom have been highly critical of the deal, it’s a promise that also needs to be honoured for long-suffering Yahoo! shareholders, who have seen a massive drop in share value from the days when Yahoo! was the darling of the dotcom era.
Tumblr is a micro-blogging platform that enables users to quickly post text, images and video, then follow each other’s posts.
Numerous celebrities such as Lady Gaga, Alicia Keys and Britney Spears have Tumblr blogs, and it is highly popular among younger digital devotees.
Tumblr boasts 100 million users who post 90 million blog posts daily, representing high volumes of interaction from a loyal user base, with 85 per cent of users posting 20 or more updates each month.
But the acquisition comes with a catch. Buying Tumblr cost Yahoo! a fifth of its available cash, and Tumblr reported just US$13 million in revenue last year.
Even those modest revenues came only after venture investors had poured in US$125 million.
It’s likely that Mayer sees what Tumblr’s venture investors saw – a lot of potential.
In announcing the acquisition, Mayer claimed Tumblr could grow Yahoo!’s audience by 50 per cent to more than a billion monthly visitors, with 20 per cent growth in traffic.
But Mayer, who is intent on switching perceptions of Yahoo! with the billion-dollar blogging platform, has not made her plans clear.
Tumblr founder David Karp.
Apart from her promise not to screw up Tumblr, she has provided scant detail as to how Yahoo! will increase Tumblr’s mediocre revenues, or use its massive traffic to drive advertising sales.
Should the acquisition fail, at least one person will still be smiling – 27-year-old David Karp, the high-school dropout who started Tumblr in his mother’s apartment in 2007.
Karp’s playing an active role in Tumblr’s future by staying on as CEO.
That is a lot of faith to place in the hands of someone who once stated they were indifferent to how much money their company made.
But even without the acquisition, there have been positive signs emerging from Yahoo! of late, including an announcement in July by the web measurement agency comScore that Yahoo! had received more web visitors than Google for the first time since 2011.
Mayer has also presided over a 70 per cent jump in Yahoo!’s share price since taking the helm in July last year.
With Yahoo! seemingly making a comeback, the purchase of Tumblr represents a very bold gamble both for the future of the latest internet sensation and the company that Mayer wants the purchase to rescue.
This article is from the October 2013 issue of INTHEBLACK