Yahoo Inc. has agreed to pay $1.1 billion for Tumblr, a six-year-old company with more than 100 million users but very little actual revenue, in a deal that highlights the shifting balance of power in the technology business. Veterans like Yahoo have shown they have staying power—and they have cash to spend. But companies like Yahoo’s target, a blogging site, have something valuable as well: the rapt attention of fast-growing communities of users.
Tumblr is one of the Web’s most popular hubs of so-called user-generated content, drawing young people who use the platform to post pictures and text. It has more than 100 million blogs in its network. The deal is expected to increase Yahoo’s audience by 50 percent from its current meagre amount.
The acquisition is a big bet for Yahoo, given Tumblr’s financial performance so far. But Yahoo needs the growth. Its annual revenue has been stuck for years around $5 billion while giants like Google and even Bing have leaped forward, and the company’s big presence on personal computers hasn’t translated well to mobile devices, where it lacks the advantage of companies such as Apple with their hardware or Google with the Android platform. Moreover, Facebook and Google have demonstrated that a vast audience for free content can bring in significant advertising revenue.
Also, Yahoo needs youth, tech leadership, social skills and passion for content and community. Moreover, with Tumblr Fandoms and gifs not being open to Intellectual Property violations as they are on other sites, Tumblr has not only expanded its user base but also retained its old clientele a lesson that Yahoo is in desperate need of learning as it falls behind other giants in all fields.
Yahoo also strongly believes it could help Tumblr bring in more money by selling ads—also boosting its own revenue in the process. Tumblr potentially offers personal data on millions of individual users which will now potentially be open to Yahoo as well, and an ability to help Web content go “viral” as friends share popular posts – a power rivalled only by Facebook. Data is at the heart of Yahoo’s ability to sell online advertising across its sites, based on what it knows about its people’s interests and Tumblr is no doubt a valuable asset in the matter.
The deal offers unique opportunities for both companies and not just Yahoo. Tumblr can deploy Yahoo’s personalization technology and search infrastructure to help its users discover creators, bloggers, and content they’ll love helping attract more users and enrich already present customers. The blogging site burned through an estimated $25 million in cash last year, and struggled to raise additional money at an acceptable valuation. The search for profits isn’t unique to Tumblr, as free apps and services struggle to wring money from their users. Instagram famously generated no money when Facebook bought it.
The deal struck between the two giants in their own field if ‘not screw[ed] up’ promises to make both companies very rich and give them an edge in their own fields.
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