Yahoo’s $1.1 billion deal for Tumblr furthers Marissa Mayer’s strategy

Yahoo is purchasing blogging network Tumblr for around $1.1 billion, most of it in cash, the company announced Monday. Hayley Tsukayama describes the details of the deal:

Tumblr, which was started in 2007, has approximately 100 million blogs on its network and complements Yahoo chief executive Marissa Mayer’s vision of making Yahoo into a more mobile, younger, hipper company. In the company’s news release announcing the acquisition, it seemed clear that Mayer is not interested in changing Tumblr very much, saying that the company will be independently operated. (Read the rest of the article here.)

Yahoo’s news release also included a promise “not to screw it up” for Tumblr users. Part of Tumblr’s appeal is the elegant design of the pages, which aren’t cluttered with advertisements, and Neil Irwin worries that Yahoo will have a hard time converting its newest purchase into new revenue:

There is a different variety of company, which seems surprisingly common in the technology sphere. It produces a valuable product used by millions of people, and with the network effects that tend to create an economic moat. Yet it doesn’t offer a pathway to tremendous profits . . .

Tumblr . . . is a wildly popular micro-blogging site that is particularly heavily used by young adults. It has minuscule revenue, but intense engagement among its users and huge network effects; people use Tumblr because other people use Tumblr. It has been at risk of being one of those public utility type of tech companies — providing an important and popular service, but in a way that efforts to pull money out of it might bring competitors and collapse the whole thing. (Read the rest of the analysis here.)

Nick D’Aloisio, the 17-year-old whose mobile startup Summly has been bought by Yahoo for about $30 million, talks about developing applications and his plans for the future. (Bloomberg)

The deal is Yahoo’s second notable acquisition this year. The company bought Summly, an application that delivers news summaries to mobile devices, for $30 million in March. That purchase was much smaller than the Tumblr deal, but remarkable all the same because Summly’s founder, Nick D’Aloisio, is only 17:

Nick D’Aloisio, who founded the company when he was 15, launched it in December 2011, and has received financial backing from investors including Yoko Ono and Ashton Kutcher. The service sums up news articles in 400 characters, making it easy for users to scan for information and get to full articles if they want a more in-depth read. As the Associated Press noted, D’Aloisio is younger than Yahoo itself, as the company was incorporated in 1995. (Read more about the Summly acquisition here.)

Yahoo’s deal with Tumblr is its largest purchase since 2003. Earlier this month, Bloomberg reported that Mayer is also considering a bid for Hulu, the online television service. Timothy Lee writes that Yahoo’s strategy of acquiring popular brands has distracted it from developing new technology:

The most successful software companies, including Microsoft (in its prime), Google and Facebook, have focused obsessively on recruiting the best programmers. In contrast, even in its early days, Yahoo viewed content as a generic commodity to be packaged and resold to advertisers.

That ambivalent attitude toward technology was one reason Yahoo lost its dominance of the search market early in the last decade. And it explains why Yahoo failed to capitalize on the early popularity of Flickr and del.icio.us, two sites Yahoo acquired in 2005 and has done little to improve since then. In all of these cases, Yahoo squandered an early lead as more nimble, programmer-focused companies built superior products. (Continue reading here.)

For a list of Yahoo’s largest acquisitions throughout its history, visit this page.

Max Ehrenfreund is a blogger on the Financial desk and writes for Know More and Wonkblog.
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