Microsoft To Buy Tumblr?

Marissa Mayer

Yahoo CEO Marissa Mayer has been on a shopping spree lately.  Since she took over Yahoo she has made a number of acqui-hires including Stamped (a mobile-review app maker), OnTheAir (in broadcasting video chats or interviews to online audiences) (clipping service for the web), Alike, Jybe (a social recommendation site), Summly (a news condenser app maker), Astrid (a task-management app), GoPollGo, MileWise, and Loki Studios (develops games based on user’s location).  Most of the deals have been under $30 million.

Now Mayer has set her eyes on Tumblr.  Tumblr was founded in 2007 as a micro-blogging service.  Tumblr has raised $125 million from investors including Spark Capital, Union Square Ventures, Sequoia Capital, Greylock Partners, Insight Venture Partners and the Chernin Group.  Tumblr now has a reported valuation of $800 million and Yahoo’s current offer is $1.1 Billion in cash.  Mayer believes this acquisition is vital to turning Yahoo into a more mobile centered company.  Almost one quarter of Tumblr’s traffic now comes from mobile devices.   Last year Tumblr did over $13 million in advertising revenue and is now projected to do over a $100 million this year.

The deal is set to be finalized by Yahoo’s board tomorrow, however, Tumblr may be getting cold feet.  Executives at Tumblr now feel this offer may be too low.  Microsoft and Facebook have both expressed interest in buying tumblr.  Generally when large acquisitions are serious “lock-up” deals are put in place to prevent bidding wars from other companies.  However, Mayer will need to act quickly once her board approves the deal.

If the deal with Yahoo falls through would it make sense for Microsoft or Facebook to buy Tumblr?  For Facebook it may make sense.  Facebook needs to continually fight to stay relevant in the social networking space.  Facebook’s main revenue is comes from social advertising.  An extra $100 million in advertising revenue may help boost Facebook’s stock price.  The acquisition of Tumblr by Facebook would be a great defensive move, just as the acquisition of Instagram was.  However, Facebook could try to drive up the price of Tumblr which could put Yahoo in a more vulnerable position.

Now, on the other hand, an acquisition by Microsoft makes less sense to me.  Microsoft has not had too much success in the social networking space.  Their main source of revenue does not come from advertising either.  Microsoft’s only interest in Tumblr would be defensive.  Marissa Mayer is an uncontrollable factor unlike the previous two CEOs of Yahoo. It was recently reported she tried to get out of the Yahoo-Bing Search alliance deal, but was unable to.  A weaker Yahoo is good for Microsoft, and Microsoft may simply be trying to drive up the price of Tumblr.  Or Microsoft may want to help Facebook acquire Tumblr.  Microsoft may also be looking at acquiring Nook, and it is unlikely MS would do two large aquistions simultaneously.  Another unknown factor a Microsoft’s new CFO, Amy Hood.  Amy Hood is a former Goldman’s Sachs executive who helped Microsoft make some of its largest acquisitions including Yammer and Skype.  Sources close to Microsoft say she is one of the few people within the company who has Ballmer’s ear.  Microsoft has recently been trying to consolidate the company among their six major brands: Windows, Azure, Skype, Office, Bing, and Xbox.  Tumblr really fits nowhere into these, and also has no major enterprise play.

For any company that ends up buying Tumblr, it faces a large pornography problem.  There are literally thousands of tumblrs dedicated to posting porn pictures. (Of course I’m only speaking from second hand knowledge :p) This is problem that may scare away potential advertisers.  Another problem is Tumblr’s main audience is young hipster women.  There may be a point where tumblr isn’t “cool” anymore, and there goes all the site’s traffic.  Competition from other social sites is fierce too, for example Pinterest, which Yahoo is also looking at buying.

Ultimately for Tumblr I think their best bet is to go with Yahoo.  With Tumblr’s explosive growth, their expenses are currently outweighing their total revenue.  With Yahoo in a desperate position for direction and talent, Tumblr can structure the deal in such a way that they can maintain their independence from Yahoo while gaining financial stability.  For Mayer, Tumblr is a big bet, but something she needs to turn Yahoo around.  I think we’ll see a Yahoo-Tumblr deal finalized within the next couple days.

So will Microsoft buy Tumblr? I think the answer is clearly no.

  • blackhawk556

    makes no sense. They should have bought instagram instead.

    • grs_dev

      Instagram is already owned by Facebook in case you weren’t aware…

      • Nick

        …and Microsoft invested HEAVILY in Facebook early on.

  • grs_dev

    Makes perfect sense!

    • steveo99

      Video sharing like youtube maybe? Those bastards at google needs a direct competitor.

      • Sanjit Vignesh


      • grs_dev

        To beat google you must offer a more compelling Ad story. Advertisers love google’s ad arsenal.

        Take away the ad revenue and Google will come down crumbling.

        House of cards…

    • Alex

      NO the real answer is make insanely great.

    • Alf Lenni Erlandsen

      Though SOCL needs to get in there! 4 real!

  • Rikkirik

    I think Microsoft should have acquired Yahoo when the stock was down at $10. Microsoft should at least have acquired Yahoo’s search engine.

    • Nick

      Yahoo search is basically Bing with Yahoo clothes on.

    • PoohGQ

      Microsoft only wanted their Media business and Yahoo members. Search engine is Hemi under-the-hood.. I mean Bing..! :p

  • Javo Guajardo

    NOOOOOOOO! Tumblr shouldn’t sell out!

    • Simen Mangseth

      That was what I am saying too! I love Tumblr as it is, and I hate Yahoo.

      • Alf Lenni Erlandsen

        Yahoo will f’ it up for sure… but MS on the other hand might not.

  • grs_dev

    In other news! Marissa Mayer looks smoking hot in that picture!!!!!

    • sumedh kumar

      sure she does :-)

    • the person

      no she is a fucking bitch and ice queen. She looks like a fool in those tarted up photos.

    • viipottaja

      Oh yeah.. I want to start one of those porn tumblr blogs with her! Just did the nasty just looking at the picture! 😛

    • WixosTrix

      She totally does! I was like “damn” and I don’t even like women, lol.

    • darthtigris

      Uber-rich, powerful, successful, attractive blonde … how can I be down???!!!

    • koenshaku

      If that is her yahoo will probably win the bid lol.

  • sumedh

    Whatever MS or yahoo plan on doing , i just want to see google go down…

  • sumedh kumar

    I love the Joker.

  • Peter Kremzar

    It’s my opinion that it would be time for Microsoft to purchase Vimeo and start competing with Youtube.

    • Alf Lenni Erlandsen

      Or make XBOX video a full video service online so people can share from any unit in the ecosystem. Youtube needs to go.

  • Alf Lenni Erlandsen

    Well…. There it was. Yahoo bought it 1.1 Billion CASH. Story is out on THE VERGE and WSJ.

  • CXM

    When you get the urge to write something stupid and misleading please count to 10… masterbate or some shit and STOP. This headline gets a 10 on the idiotic list.

  • koenshaku

    Instagram shouldn’t even be popular, because flickr was around years before it. If that is anything to go by from yahoo’s ability to market social photo sharing apps they fail and they will just bring tumblr down. The only reason they are interested is probably because like flickr they omit the e from the word lol.

    • Jono

      Check again. Flickr is back with 1TB of free storage for all users. I think Yahoo’s shares are going to go up with the Flickr reboot.