Yahoo to Buy Tumblr for $1.1 Billion

The deal, which is expected to be announced as soon as Monday, would be the largest acquisition of a social networking company in years, surpassing Facebook’s $1 billion purchase of Instagram last year.

For Yahoo and its chief executive, Marissa Mayer, buying Tumblr would be a bold move as she tries to breathe new life into the company. The deal, the seventh since Ms. Mayer defected from Google last summer to take over the company, would be her biggest yet. It is meant to give her company more appeal to young people, and to make up for years of missing out on the revolutions in social networking and mobile devices. Tumblr has over 108 million blogs, with many highly active users.

Yet even with all those users, a basic question about Tumblr and other social media sites remains open: Can they make money?

Founded six years ago, Tumblr has attracted a loyal following and raised millions from big-name investors. Still, it has not proved that it can be profitable, nor that it can succeed on mobile devices, which are becoming the gateway to the Internet. Even Facebook faces continued pressure from investors to show it can increase its profits and adapt to the mobile world.

“The challenge has always been, how do you monetize eyeballs?” said Charlene Li, the founder of the Altimeter Group, a consulting firm. “Services like Instagram and Facebook always focus on the user experience first. Once that loyalty is there, they figure out how to carefully, ideally, make money on it.”

A Yahoo spokeswoman declined to comment. A representative for Tumblr did not respond to requests for comment.

If the deal is approved, Ms. Mayer will face the challenge of successfully managing the takeover, given Yahoo’s notorious reputation for paying big money for start-ups and then letting the prizes wither. Previous acquisitions by Yahoo, like the purchase of Flickr for $35 million and a $3.6 billion deal for GeoCities, an early pioneer in social networking, have been either shut down or neglected within the company.

Because of this, Ms. Mayer will face pressure to keep Tumblr’s staff, led by its founder, the 26-year-old David Karp, who dropped out of high school as a 15-year-old programmer. It is unclear whether all of Tumblr’s 175 employees, based in New York City, will move over to Yahoo.

At the same time, analysts and investors are likely to question whether buying a site that has struggled to generate revenue makes sense.

“This is not an inexpensive acquisition, but they’re willing to pay to get back some of what they’ve lost,” said Colin Gillis, an analyst at BGC Partners. “They want to be hip.”

In her short tenure as chief executive, Ms. Mayer has bought a string of tiny start-ups. Most of those were aimed at buying engineering talent that could help freshen Yahoo’s core products, like mail, finance and sports, as well as build out new mobile services.

Ms. Mayer has had ambitions to hunt bigger game, armed with $4.3 billion in cash from selling half of Yahoo’s stake in the Chinese Internet titan Alibaba.

She has had conversations with a number of other big-ticket targets, like Foursquare, a mobile app that lets users find nearby restaurants, stores and bars, and Hulu, the video streaming service, according to people with knowledge of those discussions who were not authorized to speak publicly.

Tumblr brings something that Ms. Mayer has sought for some time: a full-fledged social network with a loyal following. The start-up claims more than 100 million blogs on its site, reaching 44 million people in the United States and 134 million around the world, according to Quantcast.

But in some ways, Yahoo isn’t pursuing users — it already claims 700 million, one of the biggest user bases on the Web — but products and services that would again make it a central destination. Once the biggest seller of display ads in the United States, Yahoo has lost market share to the likes of Google and Facebook. Its share of all digital ad revenue tumbled to 8.4 percent last year, from 15.5 percent in 2009, even as total advertising spending grew, according to eMarketer. Google now claims about 41 percent.

Andrew Ross Sorkin and Jenna Wortham contributed reporting.

Article source: http://www.nytimes.com/2013/05/20/technology/yahoo-to-buy-tumblr-for-1-1-billion.html?partner=rss&emc=rss