Marissa Mayer wants to attract a younger, hipper audience for Yahoo. Its audience of 700 million is aging, and the 18-year-old brand that defined the first era of the Web doesn't have a compelling entry point to attract the coveted 18- to 34-year-old demographic.
Speaking at the J.P. Morgan Global Technology conference this week, Yahoo CFO Ken Goldman said, "We're working hard to get some of the younger folks," and that Yahoo needs content that's more relevant the 18- to 34-year-old bracket.
Yahoo's board of directors is meeting this weekend to consider resolving its youth problem by plunking down $1.1 billion in cash for Tumblr, AllThingsD reported Friday.
Tumblr has a lot of momentum, with over 100 million visitors per month, 100 million blogs, more than 90 million posts per day, and over 50 billion posts to date, according to the company. And, it's a social network, which Yahoo lacks, where Tumblr users are followed and follow other blogs, and can repost their blogs to their Twitter and Facebook accounts. The 6-year-old company generated $13 million in 2012 and could hit $100 million this year with a major push of "native" advertisements: brands posting bloglike ads in the Tumblr content stream.
In addition, Tumblr would fit into Yahoo's complete focus on winning in mobile. Derek Gottfrid, Tumblr's vice president, told Bloomberg that the company's mobile usage has quadrupled over the past six months and is nearly equal to Web usage.
It would be the biggest bet for Mayer, who in her less than one-year tenure has acquired 10 smaller companies, mostly for the engineering talent. She has also refreshed several of Yahoo's core applications, such as Mail, Flickr, and the Yahoo home page, but those aren't going to move the needle much in attracting a younger audience to the brand.
Of course, there's a big risk in spending a billion dollars on a blogging platform that essentially competes with Facebook and Twitter. Yahoo's board has a good reference point for considering the Tumblr downside. In 2005 Fox bought the fast-growing social network MySpace for $580 million. Then Facebook came along, and six years later Fox unloaded MySpace for $35 million. Yahoo isn't Fox, where MySpace was an island in a sea of mostly unrelated news properties.
As a source of Yahoo revenue growth, Tumblr could become a profitable company. It's valued at around $1 billion, with $125 million so far in funding. But generating Tumblr revenue is a slog compared with the kind of revenue that search and deeply personalized user experiences could deliver.
The question for Yahoo's board is how to make 1+1=3. Bolting Tumblr onto Yahoo wouldn't do much to advance the buyer's cause. Convincing Tumblr's younger demographic to give up their current daily habits, which likely don't include Yahoo Mail, Flickr, and other Yahoo services, isn't an easy win.
Like most of what Mayer is attempting at Yahoo, it's a long and winding road. Bringing another 100 million users into the Yahoo orbit (the overlap between Yahoo and Tumblr is probably not that significant in terms of time spent) who are mobile and grew up on the Web would be a win. Getting Tumblr users to adopt Yahoo services, however, will depend on making the apps and content more attracting and compelling. That's been a core "sprint" for Mayer, and she's been speeding up the cadence of product updates and investing in categories, such as sports and entertainment, that would appeal to Tumblr users. However, wiring Tumblr's social network into Yahoo would take some time.
In her most recent earnings call, Mayer stated that "getting the company growing at a rate we would like to will take several years." If Tumblr ends up with Yahoo, it will take time to extract the value of the combination, but it's unlikely to become Yahoo's MySpace. Mayer seems dedicated to remaking Yahoo's image and infusing the company with a new spirit that Tumblr embodies.
We may find out Monday whether Yahoo's board voted yea or nay. The company sent an invitation to the press Friday for a product event in New York for that day.