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Synergy arising from Yahoo! acquiring Tumblr

Updated on June 3, 2016

Yahoo has acquired Tumblr for $1.1 billion in cash – roughly a quarter of the purchase price The product roadmap, their team, their wit and irreverence will all remain the same as will their mission to empower creators to make their best work and get it in front of the audience they deserve. Yahoo! will help Tumblr get even better, faster. This comes in the wake of the rising competition from another Silicon Valley Competitor, Facebook which recently acquired Instagram, a photo editing and sharing tool.

Yahoo –

Yahoo! Inc. is an American multinational internet corporation headquartered in Sunnyvale, California. It is widely known for its web portal, search engine Yahoo! Search, and related services, including Yahoo! Directory, Yahoo! Mail, Yahoo! News, Yahoo! Finance, Yahoo! Groups, Yahoo! Answers, advertising, online mapping, video sharing, fantasy sports and its social media website. It is one of the most popular sites in the United States. According to news sources, roughly 700 million people visit Yahoo! websites every month. Yahoo! itself claims it attracts "more than half a billion consumers every month in more than 30 languages."

Yahoo! Inc. was founded by Jerry Yang and David Filo in January 1994 and was incorporated on March 1, 1995. On July 16, 2012, former Google executive Marissa Mayerwas named as Yahoo! CEO and President, effective July 17.

Tumblr –

Tumblr, stylized in their logo as Tumblr, is a micro blogging platform and social networking website, owned and operated by Tumblr, Inc. The service allows users to post multimedia and other content to a short-form blog. Users can follow other users' blogs, as well as make their blogs private. Much of the website's features are accessed from the "dashboard" interface, where the option to post content and posts of followed blogs appear.

As of May 19, 2013, Tumblr hosts over 108 million blogs. Its headquarters is in New York City's Silicon Alley.

In early June 2012, Tumblr featured its first major brand advertising campaign in conjunction with Adidas. Adidas launched an official soccer Tumblr blog and bought placements on the user dashboard. This launch was only two months after Tumblr announced it would be moving towards paid advertising on its site.

Acquisition Rationale:

· With this acquisition, Yahoo’s unique visitor count will increase to over 1 billion unique user per month. Additionally, Yahoo also gets access to 60 billion blog posts on Tumblr that can be monetized through its advertising network. The combination of Tumblr+Yahoo! could grow Yahoo!’s audience by 50% to more than a billion monthly visitors, and could grow traffic by approximately 20%. Tumblr will bring 50 billion blog posts (and 75 million more arriving each day) to Yahoo!’s media network and search experiences.

· The combination of Yahoo and Tumblr creates an online powerhouse with roughly one billion users, which will draw in more advertisers and help Yahoo keep visitors on its properties for longer periods of time Though Yahoo remains one of the Web's most popular destinations, it has seen its revenue shrink in recent years as consumers and advertisers favor rivals such as Google Inc and Face book Inc. The deal is expected to increase Yahoo's audience by 50 percent.

· Yahoo Inc's first quarter revenue fell slightly to USD 1.14 billion from USD 1.22 billion in a year- period. The deal is expected to increase Yahoo's audience Yahoo could quickly boost Tumblr's revenue by combining the website with its own sales force

· Tumblr has witnessed rapid growth in the past few years and it continues to add 120,000 new users per day to its website. Yahoo firmly believes that it can monetize Tumblr successfully and also retain most of its 300 million unique users

· Tumblr has raised total of $ 125m in venture funding since 2007,led by Spark Capital,Union Square venture and Beta works.In 2011 it raised $ 85m at a Valuation of $ 800 m from investors including Greylock Partners, Sequoia Capital ans Peter Cherrin.Tumblr in among the 20 most visited website in the US and generalized Solid User Growth last year though its expansion has flattened in 2013,according to Web measurement Co, Alexa.

Yahoo plans to use its personalization and search technologies to tie Tumblr users more tightly into its network – thus dragging their attention away from rival social networks such as Face book, Twitter, Pinterest and Google+

Source (Trefsis)

Benefits to Yahoo:

Tumblr hosts 105 million different blogs. With more than 300 million monthly unique visitors and 120,000 signups every day, Tumblr is one of the fastest-growing media networks in the world. Tumblr sees 900 posts per second and 24 billion minutes spent onsite each month. On mobile, more than half of Tumblr’s users are using the mobile app, and those users do an average of 7 sessions per day. Tumblr’s tremendous popularity and engagement among creators, curators and audiences of all ages brings a significant new community of users to the Yahoo! network.

Tumblr can deploy Yahoo!’s personalization technology and search infrastructure to help its users discover creators, bloggers, and content. The two companies will also work together to create advertising opportunities that are seamless and enhance user experience.

Benefits for Tumblr:

· For Tumblr, meanwhile, being acquired would solve a number of problems Tumblr is facing increasing pressure from the investors. Restructuring with Yahoo will take care of that problem in one fell swoop, especially if it was all in cash.

· With a major company like Yahoo as a partner, Tumblr could connect its massive audience of users to the firehouse of ads and other monetization methods the giant web portal has, and potentially generate much more revenue than it could have by itself.

Comparative Study:

Following are some of the deals concluded by other major software companies recently.

· Google acquisition of Motorola

Google acquired Motorola Mobility in 2011. The main idea behind the deal was to acquire patents of the company in order to protect the companies which used Android platform for handsets. The acquisition proved to be beneficial which can be viewed from astronomical rise in share price of the company. Google paid close to $12 Bn. for the acquisition at the time when the company had net profit close to $76 Mn.

Facebook Acquisition of Instagram –

In September 2012, Facebook made an offer to purchase Instagram (with its 13 employees and approximately nil revenues) for approximately $1 billion in cash and stock in April 2012, with plans to keep the service independently managed.

Though the above two acquisitions may not be exactly similar but since the 2 acquirers are from same industry and really defining the way the industry is shaping up, comparison becomes imminent. The most contrasting difference in the 2 targets was not the business into which they were but the stage at which they were acquired. Motorola was a well established brand but was acquired not for its brand but for the patents they had in offering. In contrast Facebook acquired what they considered a future threat, a company with no earnings which itself poses a question on valuation.


Only time will tell whether Yahoo’s acquisition of Tumblr was beneficial or not. But looking at the past transactions (especially Instagram’s acquisition by Facebook) it is clear that these types of acquisitions which are totally dependent on future performance generally don’t create wealth for shareholders. As more users generally consume more content, an increase in unique user count will be boon for Yahoo. If Yahoo can tightly integrate Tumblr’s and Yahoo’s content across its properties and increase user engagement, it can translate into more searches and eyeballs across Yahoo properties which will translate into higher revenues for Yahoo.


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