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Yahoo Beats Out Microsoft To Nab Tumblr

In a defining moment for Yahoo, the company today said it has agreed to acquire the popular micro-blogging site Tumblr for $1.1 billion in cash. Rumors had swirled for several days that Yahoo was the leading contender to acquire Tumblr, though Facebook and Microsoft were also reported to have engaged in serious talks to acquire the company.

It's hard not to see just a bit of irony in the fact that Yahoo bested Microsoft for Tumblr, given Microsoft's failed bid to acquire Yahoo in 2008 and the current search partnership between the two companies. Of course the latter is less unusual given that partners almost always compete at the same time.

It's not clear how badly Microsoft wanted Tumblr, a company that boasts 300 million unique visitors monthly, 120,000 new accounts each day and 900 posts per second. Half of those posts are from mobile devices that conduct an average of seven sessions per day, and Tumblr says its collective audience spends 24 billion minutes on its site monthly. It seems Microsoft is itching to do some kind of deal, coming off reports last week that it's also weighing buying Barnes & Noble's Nook business.

In rather unique verbiage for an official announcement on an investor relations site, Yahoo said the two companies agreed "not to screw it up" by deciding to keep Tumbr as a subsidiary that will continue to be led by its founder and CEO David Karp. For Yahoo the deal is a big bet. While Tumblr has a huge audience its revenues are not so enormous -- a paltry $13 million. That's because it has eschewed advertising. Something Yahoo will undoubtedly change.

Microsoft has a vested interest in Yahoo's overall well-being, at least for now. A report in The Wall Street Journal two weeks ago said Yahoo may want out of its deal with Microsoft to use Bing as its search engine. According to that report, Yahoo CEO Marissa Meyer is unhappy with the fact that its revenue per search with Bing is lower than it was when it ran its own engine.

Meyer's former employer, Google, is waiting in the wings, according to the report, though Microsoft is said to have no interest in letting Yahoo out of the deal before it expires in 2020. One source close to the contract said the earliest Microsoft might let Yahoo walk is 2015.

As for Tumblr, what's your take on Microsoft's alleged interest in acquiring a blogging site? Should Microsoft go down that path, either via acquisition or organic development or should it leave that to the likes of Facebook, Twitter and WordPress?

Posted by Jeffrey Schwartz on 05/19/2013 at 1:15 PM


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