Yahoo's Uphill Journey Back to Relevance


May 21, 2013

The Internet has been abuzz for the last week with the speculation around and subsequent confirmation of Yahoo!’s decision to purchase Tumblr for $1.1 billion USD.* Many of the discussions have asked the community what Tumblr + Yahoo! means for the futures of the companies and whether Tumblr will continue** a path of relevance as an entity of Yahoo!

Yahoo’s recent updates are clear indicators of their trajectory: a news feed; cleaner, crisper design; and, of course, trends and customizations, are all communicating their desire to reenter the sphere of popular tech sites. Yahoo’s most drastic update has been the firing of their old CEO and hiring Marissa Meyer from Google. Many have wondered what her vision of Yahoo will look like, and I think the purchase of Tumblr has solidified my interpretation of that vision.

Yahoo needed the opportunity to create a new ecosystem that would bring it back to relevance. Tumblr is that opportunity.

I believe that Yahoo is making a play to become a major player in the social networking sphere. Between the acquisition of Tumblr and the updates to Flickr, Yahoo is poising to take on Google+ in integrating search with a networking platform, and let’s be honest, Tumblr is more of a blogging platform that’s about circulating content within itself and I would consider it to be more of a social network than pure blogging platform. The other piece of this puzzle is Flickr – with Facebook purchasing Instagram, I believe Yahoo wants to challenge the Facebook + Instagram ecosystem with Tumblr + Flickr. Based on nomenclature alone, Yahoo wins.

*$1 BILLION DOLLARS. Was Tumblr really worth $1 billion? According to this article, Tumblr has approximately 50 million blogs generating 2.3 million posts per hour. This piece in Time states that at the time of Instagram’s acquisition, the userbase was 30 million with 40 million photos being shared daily. I’d say that these figures are fairly comparable and both received very close to the same valuation at time of purchase.

Do I think Instagram was worth a billion dollars? No. Do I think Tumblr is worth a billion dollars? No. But the Instagram sale, as unreasonable as it was in my opinion, has become the standard for acquisitions within the tech/networking realm. I don’t think we will see acquisitions of companies with similar users/content share rates for any less at any point in the immediate or long-term future.

If you want to read an excellent article on the acquisition and its comparison to other tech acquisitions in the past (YouTube), check this Wall Street Journal article.

**For a company without any monetization methods in place, Tumblr just made bank on a $1.1 billion dollar acquisition. Tumblr is an excellent blogging/reblogging platform, but I don’t think it was in any way a network that was experiencing tremendous growth before acquisition. In fact, I don’t think it would’ve been solvent for much longer without a serious injection of cash, which I don’t think would’ve been very likely given its lackluster performance over the last year. Business Insider sums up my feelings on Tumblr’s lackluster stats here.

I don’t think Tumblr is enough to take Yahoo where it wants to be, but I think it’s a step in an interesting and new direction for Yahoo ultimately resulting in Yahoo spending $1.1 billion in cash. I would’ve kept the cash in a rainy day fund – which I think Yahoo will need in the next 4 years.