Yahoo! Inc. (NASDAQ:YHOO) has been on a major shopping spree this year. Since taking the helm at Yahoo!, CEO Marissa Mayer has been absorbing smaller mobile app producing businesses, such as Astrid, Jybe, Propeld, Stamped, OnTheAir, Snip.it and Summly. Astrid is a to-do list, Jybe, Propeld and Stamped are social recommendations apps, while Snip.it and Summly are focused on news sharing and summarization.
Yet with $3.0 billion in cash, Yahoo! Inc. (NASDAQ:YHOO) has been reportedly looking for the elusive game-changing acquisition that would help it catch up to
What the deal means for Yahoo!
I think it’s clear that Mayer, one the chief architects of Google Inc (NASDAQ:GOOG)’s ecosystem, believes that Yahoo! continues to trail Google due to its lack of several major components that modern Internet users are dependent on. For example, Mayer realized that mobile users were increasingly dependent on social recommendation services, such as Yelp Inc (NYSE:YELP) and OpenTable Inc (NASDAQ:OPEN), so she addressed that need by acquiring several recommendations apps. She also realized that Yahoo’s own video site lacked the social aspect of YouTube, which she attempted to solve with the Dailymotion bid.
Mayer also realizes that Yahoo! Inc. (NASDAQ:YHOO) has no viable social platform to compete against Google+ or Facebook. That’s where New York-based Tumblr could help turn the tide, since it has a self-sustaining user base to continuously generate and share content. More importantly, Tumblr would boost Yahoo’s display advertising revenue, which declined 11% year-on-year last quarter.
In addition, Yahoo! already owns photo-sharing site Flickr, which has a user base of over 50 million. Flickr’s recent iOS redesign caused photo uploads and viewership to spike 25%. Therefore, just as Google Inc (NASDAQ:GOOG) turned Picasa into its image sharing platform, Yahoo! can do the same by merging Tumblr and Flickr into a single, seamless photo-blogging platform.
Moreover, for Yahoo, acquiring Tumblr would help it reach the critical demographic of 18 to 24-year-olds, who often consider Yahoo! Inc. (NASDAQ:YHOO) to be a relic of the past. At JPMorgan’s Global Technology conference, Yahoo! CFO Ken Goldman bluntly stated, “One of our challenges is we have had an aging demographic.” Goldman went on to say that Yahoo! needed to boost its visibility to become “cool again.”
What the deal means for Tumblr
Tumblr reportedly generated $13 million in revenue last year, and claims that it could generate up to $100 million this year. This revenue comes from the site’s recent introduction of smaller “native ads,” which promote integrated advertisements from company-produced Tumblr pages, rather than from external sites. This is the same tactic that Facebook and Twitter have used, with their respective News Feed ads and promoted posts, and is considered a less jarring technique to advertise to social media users.
Although Tumblr is showing positive revenue growth, its management structure is still not clearly defined. Tumblr has been searching for an experienced COO similar to Facebook’s Sheryl Sandberg to help mold 26-year old CEO David Karp’s vision into a profitable business. Tumblr also recently hired former Yahoo! and Groupon Inc (NASDAQ:GRPN) executive Lee Brown to help increase the size of its sales workforce.
Therefore, Marissa Mayer might be the perfect guiding hand Tumblr needs to reach its full growth potential. Tumblr would gain a larger audience through tighter Yahoo! integration, and Yahoo! could open the doors for more advertisers to start creating their own promotional Tumblr blogs.
If Yahoo indeed acquires Tumblr, it would gain another valuable piece to the ecosystem that I believe that the company is building. Tumblr combined with Flickr could be the knot that ties everything together. Yahoo’s recently released mobile app, which draws together e-mail, news summaries, headlines and web search, suggests that this ecosystem could soon include its motley crew of “acqui-hired” social recommendations apps.
Yahoo! still lacks a lot of Google and Facebook Inc (NASDAQ:FB)’s respective cloud-based and social components, but Mayer is taking some major strides forward while her predecessors were constantly retreating. Last month, Yahoo! surged past Facebook to become the second-most visited site in the United States, with 164.4 million unique visitors to Facebook Inc (NASDAQ:FB)’s 164.1 million. Although Yahoo! still trails Google’s 171.9 million unique visitors, it’s clear that Yahoo!, which had 300 million monthly mobile users in the first quarter, is on the right track.
Therefore, I think if investors want to profit from Yahoo’s turnaround story, then the time could be now, before all of these plans are unified into a single, growing platform.
The article Will Yahoo! Become the Next Big Social Network? originally appeared on Fool.com is written by Leo Sun.
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