There is concern that when Yahoo purchased Tumblr they made a 1.1 billion dollar blunder, and that these feeble attempts to resurrect the dying organization will only do harm to both Yahoo and Tumblr. From an accounting standpoint, it doesn’t seem wise for Yahoo to purchase Tumblr at such a high price when the profit margin for Tumblr is relatively infinitesimal to the $1.1 billion dollars shelled out. However, these neurotic looks at the dollar figures may not reveal the entire story. First, let us consider the effect of the purchase on Tumblr. Some are worried that under the leadership of Yahoo and Marissa Mayer there will be more mistakes similar to the ones that have caused Yahoo to lose it’s competitive edge. Tumblr, being a new and innovative website, may only be bogged down by the dry - perhaps invalid - ideas of Yahoo. However, that is simply not going to be case. David Karp, who founded Tumblr in his mother’s apartment, will remain the CEO of Tumblr even now. Tumblr has not lost any of the leadership that it once had. No, rather, now, Tumblr has the advantage of being able to borrow also from the leadership and finances of Yahoo. Moreover, to conjecture that Tumblr will be eaten up by Yahoo is a serious dismissal of the steadfast brilliance of the Tumblr staff. For Tumblr, all that will change is how the accounting will be done and how many opportunities for corporate collaboration there will be. Tumblr: Clear win. As the great and famed economist Adam Smith once advocated: it is through the voluntary exchange of private property rights that wealth is created. Indeed, this exchange may have very well developed wealth not only for Tumblr, but for Yahoo as well. It is very easy to say that Yahoo put far too high of a price tag on Tumblr, given the historical revenue for Tumblr. Moreso, with that amount of cash, you would think that Yahoo could have spent the money on more valuable investments. Indeed, from a finance standpoint, the deal was absolutely ridiculous. However, from a social media standpoint, it may have been nothing short of a stroke of genius. Tumblr and Yahoo now have a mutual relationship that will increase the membership enrollment of both sites as well as the time that members spend on each of these websites. This will allow for better marketing, better use of advertisements, and more marginal revenue for both Tumblr and Yahoo. You could even argue that this purchase was overdue. You see, other social media giants like Google, Facebook, and (even) Myspace have blogging capacities that add to the depth of social interaction between members. Yahoo, with hardly an answer to this, was simply too late to try to enter. If Yahoo had decided to develop similar blogging capacities, they would have to compete with Google, Facebook, Reddit, and _Tumblr_. Instead, Yahoo was able to develop this capacity instantaneously by purchasing Tumblr, perhaps saving their social network in the long-run. Yahoo may not be the most competitive social media website currently, but now they have the traction to start. In the end, Marissa Mayer took a gutsy, if not risky, decision. But, I find the decision to be valid. Good job, Yahoo! Best of luck!
Posted on: Thu, 06 Jun 2013 10:51:50 +0000
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