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Yahoo! Radically Changes Acquisition Strategy To "Don't Screw It Up"

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If you've seen the internet today you know that everyone wants to talk about their feelings regarding the union of Yahoo! and Tumblr, those icons of two different generations of internet orthography. Do you prefer the florid olden style of Extraneous Punctuation! or the sleek postmodern vibe of Mssng Lttrs?1 Let us know in the comments or, of course, on your Tumblr. Here's Goldman's note:

Management cited the “uncanny” fit between Tumblr, with its fast-growing but largely unmonetized usage, and Yahoo, with its strengths in monetization but declining engagement.

Many people would think "avaricious widely disliked company" and "well-liked nonprofit, more or less," would not be a good fit for each other, but I guess "uncanny" doesn't actually mean "good."

The press release is ... terrible? Unspeakable. "Per the agreement and our promise not to screw it up, Tumblr will be independently operated as a separate business," begins the second paragraph. Are you encouraged? If you're a Tumblr user? (Not really, right?2 ) If you're a Yahoo! shareholder? I drew you a picture:

Etc., etc., there is this:

Yahoo is the Internet's original media network. Tumblr is the Internet's fastest-growing media frenzy. Both companies are homes for brands - established and emerging. And, fundamentally, Tumblr and Yahoo! are both all about users, design, and finding surprise and inspiration amidst the everyday.

That's a good line for earnings calls; "sorry about the miss but I think you'll find we're all about finding surprise amidst the everyday and also the operating margin."3

Or Jim Cramer:4

"I will point out that they have 180 million users, so suddenly Tumblr gives Yahoo relevance," Cramer said. "$1.1 billion, that's just a check and suddenly 180 million people have heard of Yahoo."

Have people really not heard of Yahoo!? I feel old, is I guess most of what I'm saying.

What do you think? I mean, model it up, ha ha ha, Tumblr's revenue seems to be $13mm per year, meaning that the return here is a little less than you'd get from a bank account. Obviously there will be monetization; if Tumblr can be made as unpleasant as Facebook then on a per-user basis I guess it's worth like $17bn?

Or consider process? You've got a newish CEO, who I'm going to guess is about half the age of the average Yahoo! user, looking to put her stamp on the company with a transformative acquisition, or at least a cool or neat-o or totally gnarly acquisition, or at least, like, "every other Yahoo! CEO got to acquire some random companies why can't I?" You've got a long in the tooth public company frequently criticized for a lack of focus. You've got a price determined by (1) what Tumblr's bankers at Qatalyst (mssng lttrs!5) decided they could get away with asking and (2) what Marissa Mayer happened to have in her pocket as walking-around money, with no support or pricing discipline from investment bankers. It all looks pretty empire-building, no?

Still I guess there's some reason to hope? There is a bull case; Felix Salmon makes it here and Henry Blodget makes ... something here. And the process isn't all bad. For all that this is Mayer's first statement-y acquisition as CEO, she does answer to a board that was recently shaken up to be more shareholder-responsive and contain Third Point representatives. Third Point could be wrong, of course, but activists who are awake and paying attention tend not to like empire-building acquisitions, which is a good sign for this one. Also, given Yahoo!'s history of bad acquisitions, it's nice to know that Mayer was supervised by a Transaction Committee of that board that includes Dan Loeb,6 a man who knows his blogging platforms.

Yahoo! to Acquire Tumblr, Promises not to screw it up, is really the title of this press release [Yahoo!]
Tumblr Deal Was a Private Party, With Few Bankers Invited [DealBook]
Yahoo can’t decide if it’s a media company or a tech company [Wonkblog]

1.I know: Yahoo!'s already killed one of those, Flickr.

2.If you are, don't be, it quickly goes on to discuss "advertising opportunities that are seamless and enhance user experience."

3.This is my favorite thing written about Yahoomblor?!?, by Timothy B. Lee at Wonkblog; he argues:

Mayer became interested in Tumblr because it was “just the kind of property that Yahoo needed to make it both ‘cool’ and relevant to new consumers.”

This is media company thinking. Media companies build brands by associating themselves with hot cultural trends. Because these trends are fickle, media companies can’t do much more than observe which way the crowd is moving and race to get in front of it.

In contrast, technology firms build strong brands by creating technology that is objectively superior to other products on the market — for everyone. ... Mayer’s vision of Yahoo as a media network and a “home for brands” suggests Yahoo won’t be producing great software products like Tumblr any time soon.

4.Read or watch the whole thing, it's pretty great, a sample:

"People who are devoid of a blog, they go on Tumblr," Cramer said. "Social media is underrated by people who are older than 23."

"It has a lot of silly stuff, but it's not silly if you're a teenager. And you want that teenage demographic if you want to sell them Old Spice," Cramer said.

"If you can get a TV channel for 180 million people, on the Web, I gotta tell you, it works."

5.I hope they stressed that in pitching for the business. "At this transformative time for your company, do you really want to go with a staid old-school unhip investment bank that actually spells its name with all the letters? Hashtag I think not." [Update: I ... I don't know how I somehow got the impression that the actual word is spelled "quatalyst"? Wrong letters, anyway.]

6.Ooh here's pretty much a crazy thing to read about Loeb and Yahoo! and Tumblr.



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