Mayer Gives Yahoo a Shot at Not Botching Tumblr

by Brad Moon | May 20, 2013 2:48 pm

The announcement was deliberately irreverent.

[1]Accompanied by an animated GIF (so much hipper than a plain old logo) that flashed “Keep Calm and Carry on” (a popular meme at the moment), Yahoo (YHOO[2]) confirmed the news the Internet had been buzzing about all weekend: It’s buying Tumblr[3], the beloved blogging site that’s most noted for porn, video game news, quirky topics[4] and generally being preferred by smartphone-wielding cool kids over established platforms like WordPress[5].

Continuing the message, Yahoo CEO Marissa Mayer put it right out there:

“We promise not to screw it up.”

The tone and the words were deliberately chosen — this was about as far from a typical corporate acquisition announcement as it gets — but can Yahoo actually deliver on that promise?

Its track record certainly isn’t great. The company has a long history of snapping up hot web properties, failing to find a way to make them a profitable contribution to its bottom line, wrecking them (in the eyes of longtime users) and often killing them off as they become a financial drag. Here are a few prominent examples:

Yahoo bought popular web-based community GeoCities[6] in 1999 in a massive $5 billion cash-and-stock deal. GeoCities was the web’s third largest generator of web traffic at the time, but as Yahoo attempted to monetize the service and bring it in line with its corporate vision — imposing restrictive terms of service, attempting to gain control of user content, setting data restrictions and charging for premium services — users began to bail. Yahoo shut it down in 2009.[7]

Flickr is another prime example. The startup quickly became one of the Internet’s most popular photo sharing sites, and when Yahoo came calling in 2005, the team at Flickr was quick to stress that nothing would change. “They’re not going to replace any of us with suits, nor induce us to wear them.”[8] However, Yahoo was determined to integrate and leverage its purchase, eventually replacing its own Yahoo Photos with Flickr. This meant an increasing emphasis on paid accounts, the requirement for Flickr account holders to adopt a Yahoo user ID, and the 2008 resignations of Flickr’s husband/wife co-founders.

In a Gizmodo piece entitled “How Yahoo Killed Flickr and Lost the Internet,”[9] Yahoo’s focus on business over innovation is cited as a key reason why it ended up losing big on the social networking wave — something Flickr had helped ignite. Instead of growing Flickr and taking advantage of its social element, Yahoo pushed for the new unit to make money and integrate with Yahoo’s services while starving it of the resources needed to stay on top with mobile, local and social. Yahoo didn’t quite kill Flickr, but reduced it to an also-ran.

Del.icio.us is yet another example of Yahoo buying a promising web startup and throwing it away. The website bookmarking site was becoming a big deal in 2005 when it was bought by Yahoo. Founder Joshua Schachter quit Yahoo in 2008 — jumping ship to Google (GOOG[10]) — and by 2010, rumors were flying that Yahoo was going to shutter the service[11]. It ended up dumping del.icio.us in a 2011 deal with AVOS Systems[12] (a company led by a pair of YouTube cofounders).

The list goes on, and there is a definite pattern: Yahoo has a reputation for buying promising web startups, hiring their founders, then squandering the acquisition with a combination of bureaucracy, integration efforts and monetization schemes that end up stifling innovation and driving off users.

But even though Tumblr fits the classic pattern of Yahoo acquisitions, there’s one key difference this time: Marissa Mayer.

Mayer came onboard as Yahoo CEO in July 2012 and has quickly moved to distance herself from her predecessors. She’s a former Google executive, a technology investor and active in social media. If anyone gets the fact that much of what made Tumblr popular was its apparent freedom from corporate oversight, content regulation and cost, it’s Mayer. That’s the whole point of that deliberately cheeky announcement: It’s an upfront statement that Mayer understands what makes Tumblr special and isn’t going to mess with a good thing.

But will she be able to resist the pressure to immediately begin integrating and monetizing Tumblr? Or can she ensure Tumblr retains enough operational independence to keep the “cool” factor, while leveraging that traffic enough to justify Yahoo’s $1.1 billion expenditure? Tumblr CEO David Karp is staying onboard and, in a press release, he vows to stay the course … but he says with Yahoo behind it, “Tumblr gets better faster with more resources to draw from.”[13]

With 300 million unique monthly visitors, 50 billion blog posts and 120,000 new users signing up every day, Tumblr has tremendous potential for growing Yahoo’s traffic. That in turn could ratchet up ad revenue and drive traffic to other Yahoo properties. (Think of what the acquisition of YouTube has done for Google.)

But if Mayer isn’t able to prevent the classic heavy-handed Yahoo behavior in these situations, those Tumblr users are among the most fickle around and they won’t hesitate to jump ship in search of the next cool, hip and independent thing.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2013/05/mayer-gives-yahoo-a-shot-at-not-botching-tumblr/

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