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Yahoo Board to Meet Sunday to Consider $1.1B, All-Cash Deal for Tumblr (allthingsd.com)
117 points by ssclafani on May 18, 2013 | hide | past | web | favorite | 110 comments



If the deal goes through Yahoo would now own the Tumblr audience, so Yahoo would have a product with a young audience, the audience Marissa Mayer wants for Yahoo, however, how would they move that audience over to other Yahoo products?

An acquisition of Tumblr seems very much like the acquisition of reddit by Advance Publications. They both have huge audiences that are passionate and growing fast but have great difficulty monetising their audiences effectively and are providing no real value to the parent company (other than the potential for the sites to become profitable). If Yahoo bought Tumblr how would they ever convert the audience into Yahoo users?

I guess it comes down to: what value is there to any company in "owning" an audience if that audience has no interest in becoming the audience of the parent and will actively resist it? People would get very angry if AP started pushing their ownership of reddit onto reddit users, having Wired articles automatically frontpaged, things like that would drive everyone away, how will Yahoo avoid that?


"how would they move that audience over to other Yahoo products?"

The way the article is phrased (though we must remember it's third-hand at best) leads me to believe the strategy may be to go the other direction, to meld core Yahoo strengths (whatever that may be) into Tumblr. That is, integrate Yahoo offerings into Tumblr rather than the other way around.


Tumblr is ad inventory for Yahoo. Specifically, mobile ad inventory -- most of Tumblr's revenue comes from mobile ads. Mobile is a huge area of growth that Yahoo is anxious to stay on top of. They don't need Tumblr's audience to go anywhere other than Tumblr, and if they're smart they won't even try.


Just redirect the money hose to their own bucket. :)


It's a bit more than that. Tumblr will decline if they just view it as a turn-key solution.


>It's a bit more than that. Tumblr will decline if they just view it as a turn-key solution.

Yes, because they can find the billion offered elsewhere, right?

I call BS. Tumblr would accept even if Yahoo wants to turn it into Zombo.com.


I read that sentence differently: Not "Tumbler will decline the offer", but "Tumbler (the platform) will decline in usage, just like geocities did"


A, ok then. Didn't think of that interpretation.


how to do this without wrecking the tumble user experience is a huge challenge. One of the great things about tumblr timelines is information purity (and great curation by its users).

iirc yahoo's strongest services are sports, news, finance, and mail. these would all seem to disrupt the feel and information purity of tumble if done carelessly.

maybe encouraging sharing/linking and extrapolating on yahoo assets by means of great tumble integration into yahoo services and vice versa could benefit both yahoo and tumblr users?


Would you say you've noticed how the YouTube user experience has changed over the past five years? I don't mean whether you like it personally or not, but whether the overall YT-as-site UX has been ruined in their acquisition by Google.

I think we're all inured a bit to site shutdowns through acquisitions, meaning that acq's have taken on a largely negative set of assumptions, but it doesn't have to be that way.


First, I would posit that Google+ encroaching into Youtube has been a negative development.

You say that "it doesn't have to be that way" w.r.t. acquisitions having a negative impact on an acquired service, and I agree that in theory, there really is no way the product has to be damaged. But there are agendas and incentives, and more often than not, we have seen first hand that the acquired products do get damaged. Maybe we can get lucky at times like Youtube, but our scar tissue didn't form from nothing.


> Would you say you've noticed how the YouTube user experience has changed over the past five years? I don't mean whether you like it personally or not, but whether the overall YT-as-site UX has been ruined in their acquisition by Google.

1. Stupid pre-rolls everywhere.

2. DMCA takedowns / country restrictions.

3. Weak community.

4. Nagging for Google+ integration.

The UX is pretty horrible. They just get away because content is king and are 1st movers. Nowadays I increasingly find more, or higher quality, stuff on Vimeo though.


This is exactly the idea that popped into my head the instant I read the title. If executed well, it would make everybody happy. It would be a great business move.

Just got to hope they can do a good job of it. I have no particular attachment to Yahoo!, but the sentimental side of me would like to see some old giants make worthy comebacks.


I think the (possible) acquisition means a lot more for Yahoo's ability to attract talent than it does for the business bottom line. Probably the same thing, but only in the longer term.

If they acquire tumblr and shut it down, or make changes that result in a receding of the user base, then they are unlikely to acquire talent. If they acquire tumblr and improve it, they will improve they position in the talent acquisition market.


even better would be to keep tumblr a separate entity like slideshare and LinkedIn and really sell that fact to recruits. slide share stresses their small company dynamic +big company resources, and I think that's an attractive proposition for many.


But is it more cost-effective to use Tumblr for signaling for HR purposes, or to just pay the recruits more to get them anyway?


I'd hypothesize that Yahoo can (potentially) get hires who they wouldn't have been able to hire with just money by having a different value proposition subset through Tumblr.


Will those hires really be that good if they don't see through the fact that Yahoo is simply using Tumblr for signaling and isn't actually integrating it into their core business? And if Yahoo does integrate Tumblr, they'll probably destroy their investment. That puts them between a rock and a hard place.

If HN is any indicator, the tech industry can already see that Marissa Mayer is just trying to use all these acquisitions to make Yahoo look hip agian.

I, for one, am not falling for that crap. I want to see some real innovative shit coming out of Yahoo before I change my (decidedly negative) opinion of them.


I think it would be smart for Yahoo to do things to attract talent, but Tumblr is probably the wrong company. Tumblr is adored by people with zero tech talent and is based in New York* . That being said, your comment has made me conflicted. MM has made a ton of insane acquisitions, but the net result is that I would actually now consider Yahoo as an employer. I suppose a series of decisions that I find stupid leading to a positive impression of Yahoo is simply cognitive dissonance that I must live with.

* I live in New York, thus don't mean this as slight.


The acquisitions are not the only thing Marissa did.


That is cryptic. What else are your referring to? Dismissing the remote employees, or free lunches, or something else?


The free lunches, no longer requiring BlackBerries, and other things Marissa did to change the culture.


> other things Marissa did to change the culture.

equally cryptic. Care to explain further? I am curious.


Not cryptic but vague, which I can imagine if he's an employee.

If yuhong is indeed a Yahoo employee and could give an inside view in the changes Marissa is making, I'd love to read a blog post with more details on that.

If he can make Marissa sign off on it, that would bode even better for Yahoo as an employer.


Bringing the audience over would certainly be a Herculean effort of integrating existing services. As an example Google plus has been integrated into nearly every facet of googles offerings. Yahoo will need to do the same with tumblr, and all of their products, in order to compete. People expect their experience across a companies various products to be seamless now days.


a lot of people have commented that integrating g+ into reader could have worked quite nicely. maybe there's a way to integrate yahoo services with tumble in that kind of symbiotic, natural way without disrupting this existing feel and workflow/user-experience of tumblr.


You knew Yahoo owns Flickr, right?

Flickr has much more power than Tumblr. And they just maintain it for 6 years with same design with ugly looking arrows that used to look nice like 10 years ago.

I don't think Yahoo has a good vibe. They just buy and kill. Flickr is the only one that could survive, which can't be considered as success.


you've just described Facebook for me (relative to the services fb wants me to use)


Well, looking forward to the next Accidental Tech Podcast - should be very interesting to get Marco Arment's perspective on this. First Instapaper, now Tumblr.

I wonder which will be a bigger deal for Marco...

[Edit - I also wonder whether he had an inkling that these conversations were taking place. He has been discussing his tumblr roots a bit more than usual recently, including his undocumented podcast easteregg that he built into tumblr, and the fact that the tumblr source code was open source, but not public, which allowed Marco to use it for future endeavors...

Edit 2: And this little hint from his Blog on May 11th.

"I ended up joining Davidville instead, for less money, because David would let me work on a brand new Mac with any keyboard I wanted and more than three feet of desk space. A few months later, we started Tumblr. Turned out to be the right move. "

]


Please note, I have zero inside information on this.

Wikipedia attributes cofounder status to Marco[1]. Let's assume that he got a raw deal from Karp and had a potential 30% stake in the business. He worked on it for 3 years and 7 months. Let's just assume he fully vested (not quite accurate, but the math is easier). Over the course of five rounds of funding, maybe the final ownership stake of the founders was diluted from 100% to 10%[2]. Marco owns 3% of the company, and walks away with a hair over $30 million pre-tax.

[1] http://en.wikipedia.org/wiki/Marco_Arment

[2] Handy infographic: http://www.bothsidesofthetable.com/2011/10/14/understanding-...


David Karp has 25% of Tumblr [1], and makes it clear, that to start off with - it really was just David and Marco.

"...Marco Arment, Karp’s first and, for a long time, only employee at Tumblr."

http://www.forbes.com/sites/jeffbercovici/2013/01/02/tumblr-...


    "Employee"
Wow, that's a kick in the balls.


I don't follow. Also: Marco calls himself an "employee" as well.


I think the suggestion is that Marco probably didn't have a sizable equity chunk - I.E. the 70/30 split might be generous - and it very well might have been something closer to 95/5.

I've listened to pretty much all his podcasts, and while Marco is pretty wide open when it comes to financials (in one memorable episode, he detailed pretty much every line-item costs associated with instapaper, and he's been even more open with "The Magazine" - discussing all of the revenue and cost elements), I don't ever recall him discussing his equity stake in tumblr, though, he did mention that he's been chatting with David recently...


If he didn't put money in and took a near-market salary from day 1, 5% is extremely generous.


Agreed if he were an average employee, but, (A) he was doing pretty much all the heavy lifting early on - to some degree tumblr v.1 was the creation of Marco, (B) he made it clear he took less money because he could "use whatever keyboard he wanted, and had more than 3' of desk space" and (C) It's not that generous when there are only two people working on a project.

Also - he's a talented developer, and tends to get shit done (as demonstrated via Instapaper, ATP, The Magazine) - and those people command a higher return.

Also - David Karp wasn't a well known entrepreneur back in the day, and Marco came in at the genesis.

5% would have been generous if it had been after a round of funding, but pre Series A/Angel Round, it's what any top level developer should ask for when going into the same situation as Marco. Tumblr might not have existed where it not for him.


Where did Marco talk about The Magazine revenues and costs?


Everywhere else, he's described as a cofounder. Being shrugged off as an employee would be insulting.


Marco is very clear about it here:

https://twitter.com/marcoarment/status/335483318311194624

and it doesn't sound like he harbors any ill will, regret, bad feelings, negativity, or insult by the distinction.


Interesting question - would you rather be a cofounder with 5% equity or an employee with 6% equity. (In the tumblr case, worth about $10mm more).

Given that most (everyone?) would rather be the employee with 6% equity, it brings into focus what's really important at the end of the day.

All else equal, the founder/cofounder label might be worth something to the ego, but, having been one of 100 or so "founders" of Opsware, and also having worked at a company where the "Founding CEO" joined almost a year after I did, I've grown to recognize that "Founder" is nothing more than a label, doesn't really signify that much.

Total Compensation Package (inclusive of equity) is what's important.

[Edit: I guess some people might consider "Founder' of a successful company to be a proxy for their reputation, and reputation is very, very important, as it can be leveraged during salary negotiations, or, raising money/hiring. So, from that perspective, being known as the "Co-Founder of Tumblr" might be relevant]


I see an analogy to the "Vice President" label in big companies.


"Founder" is very different from "early employee". Being called an employee, when that's what you are, isn't an insult.


The word, "Founder" - isn't really black and white.

Simply drawing a salary doesn't mean you aren't a founder - the vast number of founders of companies I know of in the valley draw a salary. Not investing money, also, doesn't mean you aren't a founder.

My definition of a founder? Someone who's idea's shaped what the company would be, who started work on the project prior to there being an actual company, brought a lot to the table (whether that is engineering, marketing, money, leadership) that made the company successful, and had an equity stake in the company.

In Marco's case, all four are true. He was there before tumblr existed, helped shape what tumblr would do, did much of the engineering that made tumblr what it is today, and he had an equity stake. He could reasonably be called a founder.

With that said, being known as a "Founder" is also subject to negotiation, and sometimes an employee can come on up to a year after the company is started, invest no money, but still be called a "Founder." It's really quite nebulous.


even if he were a "first hire" and only had 1/10 that equity hell still get $3mm pretax; nothing to laugh at.


bigger personal/professional deal - instapaper (full ownership and design of product, years w. the product, etc.)

bigger monetary deal - tumblr hands down


With tumblr as a curation hub and Flickr as a pool of images, maybe yahoo will next aquire a video pool (Vimeo?), a sound / music pool (soundcloud?) ... Having a small network of creative sites each with their own communities, tied by a single hub would be pretty cool.


Except that Flickr shows how poorly Yahoo will manage this acquisition. I feel sorry for all those Tumblr lovers that will see their favoured product ground down by mismanagement and neglect.


In the past Yahoo has butchered their acquisitions. However, Marissa Mayer is a product focused CEO. I see her doing a good job of not messing up the Tumblr experience if Yahoo acquires it.


I think she is already trying to fix Flickr, in fact.


The iOS app, which is one of said attempts, is outright awful, so I haven't seen much of a track record to assuage my reservations about her ability to improve the offerings. Upcoming.org was also shut down in a really stupid way, regardless of whether you like the service it self.

Very reminiscent of Google's way of going about things, actually. :)


> The iOS app, which is one of said attempts, is outright awful

It has a 4.5 out of 5 star rating in iTunes.


I wonder how many of those people use it for uploading. It's so-so for just browsing (the images in the feed are - very - downsampled).


Yahoo is under different management now; I think if Yahoo has ever had a chance to change, it's now.


Completely minor point but Iac has owned Vimeo for so long, I doubt they'd want to ever sell it to a company like Yahoo.


I agree with you, I think Yahoo gets it. They have a vision, and they're actively rebuilding their tech portfolio.

Flickr and Tumblr are great assets to have.

Whether it turns out great for them or not though, we have yet to see. It's certainly interesting to watch though.


Isn't something really weird going on in the world when you can sell a company with almost no revenue (let alone profit) and no obvious business model in the horizon for $ 1.1B, or is it just me?


The Forbes Article has them hockey sticking their revenue.

http://www.forbes.com/sites/jeffbercovici/2013/01/02/tumblr-...

"The company finished 2012 with $13 million in revenue; the hope in this “leap” year is that it’ll get to $100 million."


That article is full of gold:

2012 - Operating Expenses: $25 million, Revenue $14 million (that's an $11 million loss on paper)

For 2013, they're saying they'll need to hit 4x revenue growth in order to hit profitability?

Does that mean 4x the ads for their (fickle) userbase?


The $14 million revenue of 2012 was not using the same business model of 2013. Ads is a new thing.


There is value in buying into a network of users, but it is in no way worth 100X multiples of sales. Since such deals usually happen within the Silicon Valley ecosystem, I strongly suspect that cronyism is involved. VCs in Yahoo decide to do the VCs in Tumblr a solid, and the favour probably returned in the future. This is what investors really mean when they tell companies that they have 'connections.' The VC business is tough, with average returns dwindling each year since the bubble, so there is motivation for this sort of thing to happen.


You are buying the potential for profit.

Not exactly the same thing, but in a way it's similar to buying a broadcast license. Companies pay millions/billions for the right to project some media onto eyeballs.


>You are buying the potential for profit.

So, let me rephrase the question:

Isn't something really weird going on in the world when you can sell a company with almost no revenue (let alone profit) and no obvious business model in the horizon for $ 1.1B,

AND

no bloody potential for that kind of profit either, similar to endless other deals that got nowhere for the buyer, or is it just me?


I believe the better analogy would be buying a broadcaster, not a license. A license is just the government milking the private sector over a historical real world limitation (broadcasting frequencies).


Except a broadcast license is protected and inherently limited by the govt. Tumblr's position in the world is neither (ask all the tumblrs that have come before). It's really nothing like buying a broadcast license.


Please read my comment again. I never said it was the same thing.

> It's really nothing like buying a broadcast license.

Both provide access to eyeballs, and both are bought with the intention of monetizing that somehow... usually with advertising. That's a similarity in my book.


I'm with you - the perceived values of websites/businesses like this are astounding. Somehow founders and VCs walk away with a bunch of money after acquisitions, but what's Yahoo going to do? Seems like a large sum for an acqui-hire.

Then again I'm a giant noob when it comes to startups, funding and acquisitions. Regardless, the numbers are out of this world.


Absolutely NOT an acqui-hire. $13mm in 2012 revenue, more than doubling in 2013... "In November it shouldered its way into the top ten online destinations, edging out Microsoft’s Bing and drawing nearly 170 million visitors to its galaxy of user-created pages, according to the measurement firm Quantcast. Tumblr’s tens of millions of registered users create 120,000 new blogs every day, for a total of 86 million and counting, which drive some 18 billion page views per month."

http://www.forbes.com/sites/jeffbercovici/2013/01/02/tumblr-...


If acquiring millions of users is so worthless, why don't we all have 100k+ monthly page views and fantastic engagement numbers?

Or, put another way: put a dollar value on a speculative Yahoo effort to attract a user base the size and demographic composition of tumblr's. Don't forget to price in the risk of failure.


>If acquiring millions of users is so worthless, why don't we all have 100k+ monthly page views and fantastic engagement numbers?

What kind of bizarro logic is this?

For one, something being worthless doesn't mean it is also common. There are rare and difficult to attain things that are also worthless.

Second, we're discussing monetary worth here. That is, if you get something back for your 1.1 billion dollars.

A service giving you free money would also have 100k+ monthly page views and fantastic engagement numbers. But it would be worse than worthless.


Oh, I see you only read half my comment before responding. Try the other half now.


The point is, since when eyeballs started being worth so much? Isn't it proven already that users are like butterflies in the hand (you can't squeeze them, but let loose they fly away)? Myspace is there to prove that being king today doesn't say s* about your position in ten years. This year Facebook lost 1.4 million users, first deficit since launch.


"This year Facebook lost 1.4 million users"

http://techcrunch.com/2013/05/01/facebook-earnings-graphs/

Just to add some context, overall up 20%+ first quarter over prior year Q1. Granted flat in the first world and I could believe a small net loss but I don't see it in these numbers.



http://thenextweb.com/insider/2013/04/29/socialbakers-denies...

I'm sure FB does their best to lean on their metrics and spin the best story but at the end of the day they are publicly traded and those charts are not too ambiguous.

But sure, some of those accounts are fake every year. So a nearly flat gain in the US/Canada could well be a loss in actual humans using the service like they are meant to. I don't have a FB account myself because reasons and so I'm sympathetic to the idea that they may have peaked. Just wanted to give some balance.


How much of that 1.4 million is due to people dying?

Global churn affects your userbase when you have a userbase as insanely massive as Facebook's.


54 million people die each year (150k / day)

http://en.wikipedia.org/wiki/Mortality_rate


So the fact that 1.4 million people "left" doesn't really mean anything then.

Also, according to all statistics, Facebook has actually been GROWING. They have 1.11 billion users now compared to less than 1 billion last year. Something like a 26% growth if I recall.

Come on people, there are only a finite number of internet connected human beings on this planet. Growth HAS to slow down at some point. They're not gonna double their userbase YoY if they already have over 1bn people on their service....that'd literally be impossible.


Curiously, they had this tumblr clone called Yahoo! Meme ( http://en.wikipedia.org/wiki/Yahoo!_Meme ). Which, IIRC, was developed by Yahoo Brazil and I guess marketed mostly in the south american market. I guess it didn't get anywhere since they killed it in May 2012.


If this goes through, it may be amusing to see Yahoo doing better in the social space than Google (is with G+). Tumblr seems like a very wild, organic community that is its own social network. If Yahoo treats it the way Conde Nast has with reddit, it could turn out to be quite the boon for them.


Do you think Conde Nast believes reddit has been a boon for them?


Of course. They could sell it tomorrow for a nice multiple. They bought it for like $15 million and could easily sell it for $100+ million.


Conde Nast hasn't owned Reddit since 2011.


Technically, no, just their parent company.

"In September 2011, Reddit was split from Condé Nast, and now operates as a subsidiary of Condé Nast's parent company, Advance Publications."


i.e., they don't have a 100% stake.


it's becoming a force of its own, influencing other sites to follow it and setting trends and attitudes. 2chan is a massive social force in Japan. and reedit is following in its doorsteps and on a path of bigger things.


Even Archive Team won't be able to save Tumblr.


I think a lot of people would be interested in supporting a Kickstarter of some sort, though.


I've personally archived a few blogs, and the amount of data on tumblr is just incredible. Just a single one was almost 2.5GB. There's probably millions of blogs on tumblr.


Perhaps image archival could be something for a second tier.

It's just too important to give up over; a half-baked solution is better than none.


Yahoo needs a company like this to address two major issues. First, they lack a social offering. Second, they need to draw in more users, and I imagine Yahoo is hoping to bring over a large user base to their other products via integration with their ecosystem. If Yahoo does acquire tumbler, it will be interesting to see how they choose to integrate it (if they do at all).


Big-time integration would be a huge mistake.

Look at how big of a lead on photography Flickr when Yahoo purchased them. After the purchased they were told to focus on integration.

Flickr is a shadow of its former self


For the first time in 6 or 7 years I didn't renew my Flickr sub this year.

It's not just that I've grown older, it's that fundamentally Flickr no longer delivers the content and community, and blame for that must lie at Yahoo's door and their failure to innovate with photo.


Bingo. That 'integration' impulse by big companies is the death-knell for a product. Better off to leave a successful product alone.


Integration wasn't the problem. It was the stagnant development in every other front that ruined Flickr.


not only is the integration interesting, is by far the most challenging and critical thing they have to do with tumblr. in fact, they can't afford to mess this up. iirc there are already new blogging startups that are trying to unseat tumble as the social blogging king.


Why did someone leak this much information about a secret deal? Kara Swisher is an awesome reporter and the go-to for this kind of article, but whoever talked had a reason for doing so. One plausible guess; someone on Tumblr's board is trying to cement a second offer from another company. This article now names a price and a deadline.


Isn't Tumblr an IP nightmare, and wouldn't Yahoo taking ownership make it a giant target for litigation?


I wonder why they're deciding to offer an All-Cash offer rather than some part of the offer being in Stock. Yahoo's stock has done well lately and should be fairly attractive to Tumblr investors and management. Given the size of the potential acquisition, there aren't that many alternative suitors, so Yahoo should have pretty good leverage here, especially since Tumblr has gotten heat over the last few years regarding their lack of a business model.

Maybe Yahoo is afraid that offering say ~$400MM in stock would dilute the existing shares and irritate existing shareholders?


you don't want to suddenly create a huge stockholder.


Oh no... time to move off tumblr...


If this does happen it will be very interesting to see Tumblr's progress over the next year. Will give insight into whether Yahoo has turned the corner or whether it is the same Yahoo we have seen in the past 5 years.


Yahoo seems to be making a lot of the right moves in terms of product design and development talent. I think they have a good chance of being able to help monitize Tumblr in a way that doesn't ruin the user experience. Like you said, this will be a true test for the new Yahoo.


Agressive acquisitions such as this one are already signaling change at the company. The real question is whether that change is meaningful in terms of acquiring users and maximizing profits.


Tumblr is a media company at the core. So it should work out well for Yahoo.


I just hope they don't do crap like interspersing yahoo news or yahoo sports stuff into timelines following those kinds of themes.

please don't make the product suck by jamming yahoo products that don't match the tumble user ecotone.


What exactly does that statement mean?


Nothing

> Tumblr is a media company at the core.

Tumblr is a glorified blog hoster.


The next Flickr? Hopefully they can keep innovating after an acquisition...


Too much soap opera style info for someone who is "considering" an $1.1B deal.

It seems a bit odd, and everybody knows how these Hollywood style "romances" tend to end..


Yahoo really needed a product to fill in that Geocities gap.




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