It’s official: Yahoo is buying Tumblr for $1.1 billion, “substantially all of which is payable in cash,” and Tumblr’s young founder and CEO David Karp will stay on to continue running Tumblr. (I’m assuming that some of what’s not payable in cash here is Yahoo stock directed at Karp specifically to tie him to the larger firm.) The press release emphasizes the idea that Tumblr will operate independently of Yahoo and the idea that Yahoo is a hip company whose CEO says things like “David’s respect for Tumblr’s community of creators is awesome.”
Of course one should never take these things entirely at face value.
But one way of looking at this is that Tumblr was running out of cash, and despite all the smack people like to talk about Yahoo, it’s been consistently profitable and has billions of dollars in the bank. Tumblr’s strengths are obvious—it has a ton of users and Web traffic—but also the equally obvious weakness that it has almost no revenue. The only possible outcome for Tumblr was some variant of this: Someone has to give it a bunch of cash so it can keep existing for the next year or two while it works on turning its user base into money. Yahoo has cash. And it has some expertise in the field of turning Web traffic into revenue. So why not?
You’re going to hear a lot about Marissa Mayer trying to make Yahoo cool again, and no doubt that plays some role in her mind. But the basics here are that Yahoo is a company that has a lot of cash on hand but needs growth, and Tumblr has a lot of Web traffic but needs some cash. It’s a nice coincidence of wants and needs.