Yahoo has agreed a deal to buy the blogging service Tumblr for £723 million ($1.1 billion).
Yahoo’s chief executive Marissa Mayer said that as part of its promise “not to screw it up”, Tumblr would operate independently, with David Karp continuing as chief executive officer of Tumblr.
The deal is the largest made by Ms Mayer since she took the helm at Yahoo last July, and she described the acquisition as a “unique opportunity.”
Mr Karp, 26, who owns 25% of the privately-owned company he co-founded with Marco Arment in 2007, said he was “elated” to have the support of Yahoo.
“Tumblr gets better faster with more resources to draw from,” he added. Mr Karp emphasised that neither its aims or team was changing as a result of Yahoo’s purchase.
Yahoo was once a name synonymous with the internet, but its lead has been eclipsed by Google and it doesn’t generate the same kind of buzz as Twitter or Facebook.
The odds of success may be stacked against it with websites such as Mashable.com are already reporting a backlash among Tumblr’s user base in reaction to reports of the Yahoo acquisition.
Simply buying a company like Tumblr doesn’t guarantee street cred- remember when News Corporation bought the social networking website MySpace? (MySpace was eventually sold for a fraction of the price News Corporation paid for it.)
Yahoo is hoping that its purchase of Tumblr will boost traffic to its other properties, such as the photo sharing site Flickr.
But the £723 million question is: will it also help boost revenue?
The $1.1bn price tag for Tumblr represents a significant premium on its $800m valuation when it last raised money from private investors. Tumblr’s 2012 revenue was just $13m, according to a report by Forbes magazine, leading analysts to suggest Yahoo had overpaid for the deal.
Tumblr combines elements of blogging with social networking, and its simple design has attracted millions of users since its launch. According to its homepage, it now hosts 108 million blogs, with a total of 50.7 billion posts.
It also has a significant presence on mobile devices. But despite its fast growing user base, it has struggled to make money and has traditionally resisted advertising.
Ms Mayer said Yahoo would now work with Tumblr to create ads that “are seamless and enhance the user experience”.
Yahoo remains a giant in the internet world, with around 700 million visitors to its website every month. The majority of its revenues come from advertising.
But it has limited mobile reach and lags behind Google in the search engine rankings- it also shed more than 1,000 jobs during 2012 and has long been divided over whether it should focus on media content or on tools and technologies.
Dyenamic Solutions wonders whether Yahoo was so desperate to add a fast growing mobile business that it has paid nearly one hunded time annual sales- ten times annual sales is what you pay for the belle of the ball. It looks a very tall order to make money from this deal.