YAHOO coughed up US$1.1 billion (S$1.4 billion) to buy blogging service Tumblr earlier this week in a move seen as an attempt to reverse falling revenue.
The Internet giant's display advertising business - a key revenue driver - dropped 11 per cent to US$455 million in the first quarter from a year ago. Search revenue fell 10 per cent from a year earlier to US$425 million.
With Tumblr, Yahoo will have access to millions of blog pages to reel in display advertisers.
But who is Tumblr?
Founded in 2007, Tumblr is a blogging service that makes it easy for users to share posts, photos, videos and other content.
Its blogs are devoted to diverse topics such as art, comics, fitness, architecture, food, politics, pets and fashion.
Despite stiff competition from rivals like Blogger, Xanga, WordPress and Weebly, Tumblr has surged ahead as its platform is considered more user-friendly for creating and sharing content. Users can also go to a dashboard to identify the kinds of blogs they want to track.
In Singapore, Tumblr is more popular than Blogger.
According to app tracker Distimo, it was ranked 19th among social apps in terms of number of downloads on Sunday for the iPhone and iPad platforms while Blogger was ranked 22nd and 43rd for iPad and iPhone, respectively. On Google Play, it was ranked eighth, ahead of 25th-ranked Blogger for the same day.
Tumblr has more than 50 billion posts from 108 million blogs, with some 75 million new posts every day. More than half of its users connect through its mobile app.
This gives Yahoo access to a huge amount of content generated through Tumblr and more opportunities to sell advertisements.
Tumblr's wealth of content could be woven into Yahoo's other arms in general news, sports, finance and entertainment, providing more digital real estate for display advertisements.
In particular, Yahoo is betting that the blogging service can reel in more visitors and advertisers via tablets and smartphones as more people increasingly consume digital content on mobile devices instead of laptops and desktop computers.
It helps too that Tumblr users are primarily teenagers and in their 20s.
Thus, Yahoo can potentially regain its hip status since many consider the 18-year-old Internet pioneer as stodgy and out of sync with this important demographic group.
Yahoo, however, will not be able to benefit immediately from Tumblr. Advertising revenue on the blogging service is meagre - only US$13 million is expected this year.
But if Tumblr can achieve its forecast revenue of US$100 million next year, it will have a positive impact on Yahoo's financial performance.
Yahoo has a spotty track record when it comes to mergers and acquisitions, buying companies that become underperformers due to poor integration.
For example, online photo service Flickr - bought in 2005 for US$40 million - was folded into Yahoo instead of being allowed to innovate on its own, and has yet to pay dividends for Yahoo.
This time around, Yahoo chief executive Marissa Mayer - at the helm for only 10 months - has promised that Tumblr will be run separately from Yahoo and will be headquartered in New York, away from Yahoo's corporate office in Sunnyvale, California.
Having worked with Google for 13 years, she has a better idea of how acquired companies can be smoothly integrated into Yahoo.
As a start, Tumblr's young CEO David Karp will continue to head the unit and all of its 175 employees will become Yahoo staff.
Here is a checklist for Mr Karp to succeed at Yahoo:
- Focus on innovation, do not succumb to pressure to build features for other unrelated Yahoo products.
- Leverage the technologies available at Yahoo.
- Form a barrier against Yahoo executives who want to be closely involved with Tumblr and intervene in day-to-day operations.
This story was first published in The Straits Times on May 23, 2013
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