5 Questions: Why Yahoo Hopes Tumblr Will Expand Its ‘Coolness’

BY Meena Ganesan  May 20, 2013 at 7:00 PM EDT

Photo illustration by PBS NewsHour created with Pic Stich

Yahoo, the languishing tech pioneer, officially unveiled its acquisition of social blogging platform Tumblr on Monday. The $1.1 billion purchase by Yahoo could mean a whole world of things for both of the Internet companies, as well as for Yahoo chief executive — and former Google executive — Marissa Mayer.

We spoke with Rebecca Lieb, a research analyst of digital advertising and media for the Altimeter Group and Steven Levy, a writer for Wired, about the deal and Yahoo’s strategy behind it.

Where does Tumblr fit into the Yahoo strategy?

There are handful of things Yahoo wants from this buy, according Rebecca Lieb, a research analyst of digital advertising and media for the Altimeter Group. They want to vastly expand the Yahoo audience, Lieb told the PBS NewsHour. “Not just eyeballs, but expanding into a demographic, the millennials, the 20-somethings.”

Yahoo was once a relevant Internet body, Lieb said:

It very badly needs to re-invent itself, to be, if not cool at least relevant again … And Tumblr brings an elusive component of coolness. One of Mayer’s big challenges is keeping it cool when it is owned by a less cool corporate entity.

Steven Levy, a writer for Wired, dubs Tumblr an “image-enhancer” for Yahoo. Tumblr provides Yahoo with a way to increase its content output by repurposing user-generated material, Levy said, adding that the site elevates a platform already loved by so many people. “The technological success for Tumblr, and now Yahoo, will be teasing content out of people for free.”

What does the Tumblr experience say about the future role of mobile?

Lieb said that mobile is increasingly about imagery and cites Facebook’s revamp and focus on images after its acquisition of the social photo sharing tool Instagram. “A picture is worth a thousand words,” she said. “People don’t type about their dinner. They upload photos.” Yahoo’s pick-up of Tumblr could mean even more change in the future of Yahoo’s mobile strategy visually.

While Yahoo has seen significant plays on mobile, Lieb said the company, along with Facebook and Google, has yet to find the winning formula yet. “No one has won,” she said. “The battle is just beginning.”

Why was there negative reaction among Tumblr users?

“Tumblr has a very indie feel to it,” said Levy of what some have called the “hipster blogging service.”

The idea of a conglomerate led by a former Gooogler taking hold of that content, he added, could be disturbing. The social website revolt is a familiar tale. You can see some of those reactions here.

Levy also noted that pre-Melissa Mayer, the Web pioneer had a “miserable reputation of taking on new companies and doing nothing with them.” (Note Yahoo’s 2005 acquisitions of Flickr and del.icio.us.)

Is there any way to tell how difficult it will be for Yahoo to make money with Tumblr?

“The model Yahoo doesn’t want you to look at is NewsCorp buying Myspace, and the model they want you to look at is Google buying YouTube,” said Levy. The strategy there? “Google made the smart decision to not call YouTube Google Video.”

On Yahoo’s newfound relationship with Tumblr, Lieb’s advice is to be hands-off and leave it alone. “If Yahoo goes in and makes radical changes, the audience will defect.” But Yahoo can build Tumblr’s advertising model, Lieb said. “At the same time, Tumblr will bring a new form of non-advertising,” or native content marketing to Yahoo.

Content marketing is less alienating to the young millennial audience Yahoo is courting, signaled in this acquisition, said Lieb.

Are these tech sector deals still running ahead of their real value or are they starting to calm down?

While the jury’s still out on the $1 billion Facebook-Instagram deal, YouTube surely helped Google, both Lieb and Levy agree. But these acquisitions are not the type that are expected to break even by the next quarter or even by the end of the next fiscal year, said Lieb.

“Generally these mergers don’t work,” said Levy, noting that for every Google success met by companies like Android and YouTube, there are ten other companies that acquired and had failures.

Watch Monday’s NewsHour for more on the blockbuster merger.