The board of Yahoo, came to decision on Sunday to buy the popular blogging service Tumblr for about $1.1 billion, the media reported on Monday, a signal of how the web-pioneer plans to reposition itself as the technology industry makes a headlong rush into social media.
The deal would be the largest acquisition of a social networking company in past years as it surpasses Facebook’s $1 billion acquisition of photo service Instagram last year.
Yahoo has already scheduled a press event in New York on Monday where the giant is expected to unveil updates to its Flickr photo-sharing site, a person familiar with the matter said. While Tumblr is based in New York, it is still unknown whether the event was related to a potential deal with Tumblr.
For Yahoo and its chief executive, Marissa Mayer, buying Tumblr seems to be a profitable and successful move as she tries to breathe new life into the company.
The deal with Tumblr 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, informs The New York Times.
Founded six years ago, Tumblr has attracted both users and investors. Still, there were no idication whether the famous service would succeed on mobile devices, which are becoming the gateway to the Internet.
Even the major social networking site, Facebook, faces constant 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.”
If the deal is signed, the young CEO will face the challenge of successfully managing the purchase, given Yahoo’s notorious reputation for paying big money for start-ups and then letting the prizes wither.
Previous Yahoo’s purchases, like the acquisition 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.
That’s why, Yahoo CEO will face much pressure to keep Tumblr’s staff, led by its founder, the 26-year-old David Karp, who dropped out of high school at the age of 15. 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.”