First Instagram, now Tumblr? Over a billion dollars!!!!
On the face of it, deals like this seem crazy, overpriced and have all of the signs of an internet bubble. The fact of the matter is, $1.1b for Tumblr is a good deal.
In the world of internet networks, there are two main valuations, revenue and audience. Obviously revenue isn't in play with Tumblr as it only does $12mm a year, but it has a spectacular audience, most of whom are teens and young adults, interacting and engaged in their blogs.
What does this mean in the bigger picture, well a few observations:
1: Yahoo might eventually kill Tumblr by trying to impose strict revenue targets, (we've all seen this before and even thought they are saying the opposite will happen NOW, we've all seen what happens at the end of the honeymoon periods on deals like this).
2: Yahoo gains instant cred.
3: Melissa Mayer looks smart. It's a big deal, but it's an incredibly clever and well positioned deal, bringing a new youthful audience to Yahoo. When Randy Falco and Ron Brant went to AOL their first big acquisition was BEBO, a donkey that everyone had ridden and got off, and they dropped $800mm on it. This turned out to be one of the most stupid deals in recent history. I think Tumblr is the opposite for Yahoo, it's a smart move and shows Mayer's deal chops.
4: Who sells? Does Yahoo media sales take over sales at Tumblr? I hope not, buyers want to think that they have an independent line to Tumblr especially if they have built up strong relationships. David Carp is famous for not wanting too much advertising on Tumblr and so if YMS takes over it could get ugly.
5: Does Tumblr loose cred? If your 18 and on Tumblr because it was the little train that can, loving the indie cred of your favorite blogging company, does being owned by Yahoo kill that, are you now blogging with the big purple "man"?
The thing that I love about Tumblr is that it's a real company. By that what I mean is it has been around for seven years, (in Kardashian years that's 300). It has maintained itself through a very difficult time in our economic history and over that time built an impressive dedicated audience.
So is the Tumblr deal worth $1.1b...yes it is, and kaaaaching to David and his folks! All cash, how did they pull that?