As soon as I read the news that Yahoo acquired Tumblr, I was happy for my friends at Tumblr and prayed that they had equity. Even .01% of $1.1B is a decent chunk of change ($110,000). However, as the purchase began to marinate in my head, I started to develop a few theories on this.
Please note that I made no effort to contact either side nor I am even saying that any of these theories are true. This was more a thought exercise for myself to view the acquisition from multiple perspectives.
1. Everything was premeditated - They were getting pressure from investors, so they created a guise that they were trying to work out a monetization strategy. They knew that it wasn’t profitable/scalable enough to what the company was valued at and that Yahoo or another big whale would swoop in and try to buy them thinking that their revenue potential was higher than it really was. This way David Karp has satisfied investors, has a hands off approach from Yahoo, and can keep working on the product and keep the users happy, which is what matters most to him.
2. Failed attempt at monetizing – They figured it was time to try to make money. They brought in Barbarian Group founder Rick Webb to help them develop the products that were authentic to the community and figure out what the strategy would be sell them to brands. They hired brand strategists and sales people to work with brands to get them on the platform and buying into their unique advertising. They gave of valiant effort to make this work, but came to the realization that the revenue wasn’t scalable enough juxtapose to what they were spending and figured they HAD to sell. In comes Yahoo and the rest is history.
3. Buying Back Their Cool - Yahoo hasn’t been cool…well…ever. They have a history of buying companies and letting them rot or lose their competitive edge in the marketplace. In their minds, Tumblr is their chance to gain back what they think they’ve lost since the days they were head to head with AOL as a battling web giant. We’ll see if that’s even possible.
4. Secret Plans – The last is that we’re not privvied to some bigger plans for their partnership that will blow our minds. Yahoo is opening a NYC office. They have potential plans to integrate Tumblr and Flickr. This is the biggest purchase of 6 other companies in the past year. Hopefully there’s some bigger strategy for Yahoo. If not, they’re dumber than I thought.
Whatever the truth might be, we probably won’t know for a while. Regardless, $1.1B is a lot of money and I’m sure both sides have the opinion that they came out ahead.