[h=3]By SPENCER E. ANTE, JOANN S. LUBLIN and AMIR EFRATI[/h] What do you say when your six-year-old company that has no profit and barely any revenue gets bought for more than $1 billion in cash? Tumblr CEO David Karp exulted with an expletive.
That signoff to Mr. Karp's post announcing the deal on Tumblr's official company blog punctuates some of the cultural challenges that Yahoo Inc., an established Internet company, will face as it tries to make the acquisition pay off.
European Pressphoto Agency David Karp, founder and CEO of Tumblr.
In a blog post this morning, Yahoo CEO Marissa Mayer said Mr. Karp will continue to run the blogging service and that it will operate independently of its much bigger acquirer. She also said Tumblr could deploy Yahoo's search and personalization technology, and that two companies would work on creating advertising opportunities.
In a blog post of his own, Mr. Karp tried to allay concerns that the deal would hurt the company.
"We're not turning purple," he wrote, referring to Yahoo's corporate colors. "Our headquarters isn't moving. Our team isn't changing. Our roadmap isn't changing. And our mission—to empower creators to make their best work and get it in front of the audience they deserve—certainly isn't changing. So what's new? Simply, Tumblr gets better faster."
Ms. Mayer promised not to "screw it up."
"The product roadmap, their team, their wit and irreverence will all remain the same," she wrote in her post.
Whatever the concerns, Tumblr accepted Yahoo's first offer for the company, said Bijan Sabet, a Tumblr director and general partner with Spark Capital, a venture-capital firm that was an early investor in the blogging network.
Yahoo presented its figure of $1.1 billion to Tumblr several weeks ago along with a letter of intent.
The offer grew out of a meeting several months earlier between Ms. Mayer and Mr. Karp. Tumblr wasn't looking to sell the seven-year-old company when Yahoo reached out to explore a potential partnership, Mr. Sabet said.
"Something clicked," Mr. Sabet said in a telephone interview from the Tumblr office. "She really connected with David and got what David is all about."
That initial connection sparked a dialogue between the two companies. They began digging into each other's operations. Tumblr managers and investors spent some time on the West Coast visiting Yahoo.
After receiving the offer, Tumblr directors debated whether it was the right time to sell the company and how the acquisition would affect its tens of millions of users and its 175 employees. The two companies held many more meetings discussing the combination, specifying how it would work. Those discussions led to the creation of a binding merger agreement, which the Yahoo board approved Friday, people familiar with the matter said.
After Yahoo's board approved the offer on Friday, Tumblr's board continued to evaluate the offer through Saturday. The board approved the deal during a phone call in the middle of Saturday afternoon, people familiar with the matter said.
Google Inc.'s takeover of YouTube and Facebook Inc.'s acquisition of Instagram—which allowed each company a large degree of autonomy—provided a model for them to follow, Mr. Sabet said.
"We felt there was a way to do things to make it work out," he said. "That gave us confidence."
Yahoo's deal for Tumblr gives Yahoo, one of the original big Internet companies, a fast-growing Web service that could fill one of its many holes—namely, the lack of a thriving social-networking and communications hub. Tumblr is popular with many younger adults, in contrast with Yahoo's older customer base. Tumblr is also growing more quickly on smartphones than Yahoo.
"You only do an acquisition of this size and scale if you find an exceptional company, which Tumblr is," Ms. Mayer said Monday.
Some Tumblr users will take time to migrate to Yahoo's core websites and might never join the fold of its parent, Ms. Mayer said. At the same time, the blogging service offers several advantages Yahoo executives said could benefit Yahoo, like a successful track record snagging users on mobile devices.
"Part of our strategy here is to let Tumblr be Tumblr," Ms. Mayer said.
Yahoo is paying a premium for the company. When Tumblr last raised money, in late 2011, the $85 million venture-capital investment it received valued the company at $800 million.
Yahoo already has plans to generate more revenue from some Tumblr features like its top-of-site "dashboard" by possibly including some extra ads. Ms. Mayer credited the company for its already rich base of big-brand advertisers, which include all of the major film studios.
The deal is a big win for Mr. Karp, who remains a large shareholder, and the site's early venture investors, which include Union Square Ventures, Spark Capital and Sequoia Capital.
Ms. Mayer praised Mr. Karp for his enthusiasm for entertaining and compelling ads on other media, like TV, that can be "every bit as good as the content" when pitching products like cars.
"Where are the ads that are like that, where are the ads that are aspirational?" she asked. "We want that kind of richness in the online atmosphere."
The acquisition is a big bet for Yahoo, given Tumblr's financial performance so far. But Yahoo needs the growth. Its annual revenue has been stuck for years around $5 billion, and the company's big presence on personal computers hasn't translated well to mobile devices, where it lacks the advantage of Apple Inc.'s coveted hardware or Google's ubiquitous smartphone operating software, Android.
Yahoo Chief Financial Officer Ken Goldman said Yahoo expects its acquisition to add "relatively modest" revenue to its top line in the second half, when the deal is expected to close, with its contribution ramping up next year.
Meanwhile, Facebook and Google have demonstrated that a vast audience for free content can bring in significant advertising revenue.
New York-based Tumblr, founded in 2007, has 175 employees, more than 108 million blogs and, according to comScore Inc., had nearly 117 million unique users world-wide in March. That is up from around 58 million a year ago. The site is among a number of fast-growing startups, including online scrapbook Pinterest and news aggregation site Reddit.
Tumblr built that following by making it easy for people to create blogs and post writings, photos and videos. Tumblr users can follow other people's updates the way Facebook users follow friends—and easily share their work. With these features, Tumblr lowered the bar for online publishing and effectively merged blogging with social media.
In a pattern typical of young Internet companies, Mr. Karp, the CEO, has focused on increasing his site's user base while placing a lower priority on making money. The company didn't begin placing ads on its service until last year. In recent news reports, Mr. Karp, who once told the Los Angeles Times he was "pretty opposed to advertising," said Tumblr generated $13 million in revenue last year.
Yahoo believes it could help Tumblr bring in more money by selling ads—boosting its own revenue in the process, people familiar with the matter said. Tumblr potentially offers personal data on millions of individual users, and an ability to help Web content go "viral" as friends share popular posts. Data is at the heart of Yahoo's ability to sell online advertising across its sites, based on what it knows about its people's interests.
Write to Spencer E. Ante at [email protected], Joann S. Lublin at [email protected] and Amir Efrati at [email protected]
That signoff to Mr. Karp's post announcing the deal on Tumblr's official company blog punctuates some of the cultural challenges that Yahoo Inc., an established Internet company, will face as it tries to make the acquisition pay off.
European Pressphoto Agency David Karp, founder and CEO of Tumblr.
In a blog post this morning, Yahoo CEO Marissa Mayer said Mr. Karp will continue to run the blogging service and that it will operate independently of its much bigger acquirer. She also said Tumblr could deploy Yahoo's search and personalization technology, and that two companies would work on creating advertising opportunities.
In a blog post of his own, Mr. Karp tried to allay concerns that the deal would hurt the company.
"We're not turning purple," he wrote, referring to Yahoo's corporate colors. "Our headquarters isn't moving. Our team isn't changing. Our roadmap isn't changing. And our mission—to empower creators to make their best work and get it in front of the audience they deserve—certainly isn't changing. So what's new? Simply, Tumblr gets better faster."
Ms. Mayer promised not to "screw it up."
"The product roadmap, their team, their wit and irreverence will all remain the same," she wrote in her post.
Whatever the concerns, Tumblr accepted Yahoo's first offer for the company, said Bijan Sabet, a Tumblr director and general partner with Spark Capital, a venture-capital firm that was an early investor in the blogging network.
Yahoo presented its figure of $1.1 billion to Tumblr several weeks ago along with a letter of intent.
The offer grew out of a meeting several months earlier between Ms. Mayer and Mr. Karp. Tumblr wasn't looking to sell the seven-year-old company when Yahoo reached out to explore a potential partnership, Mr. Sabet said.
"Something clicked," Mr. Sabet said in a telephone interview from the Tumblr office. "She really connected with David and got what David is all about."
That initial connection sparked a dialogue between the two companies. They began digging into each other's operations. Tumblr managers and investors spent some time on the West Coast visiting Yahoo.
After receiving the offer, Tumblr directors debated whether it was the right time to sell the company and how the acquisition would affect its tens of millions of users and its 175 employees. The two companies held many more meetings discussing the combination, specifying how it would work. Those discussions led to the creation of a binding merger agreement, which the Yahoo board approved Friday, people familiar with the matter said.
After Yahoo's board approved the offer on Friday, Tumblr's board continued to evaluate the offer through Saturday. The board approved the deal during a phone call in the middle of Saturday afternoon, people familiar with the matter said.
Google Inc.'s takeover of YouTube and Facebook Inc.'s acquisition of Instagram—which allowed each company a large degree of autonomy—provided a model for them to follow, Mr. Sabet said.
"We felt there was a way to do things to make it work out," he said. "That gave us confidence."
Yahoo's deal for Tumblr gives Yahoo, one of the original big Internet companies, a fast-growing Web service that could fill one of its many holes—namely, the lack of a thriving social-networking and communications hub. Tumblr is popular with many younger adults, in contrast with Yahoo's older customer base. Tumblr is also growing more quickly on smartphones than Yahoo.
"You only do an acquisition of this size and scale if you find an exceptional company, which Tumblr is," Ms. Mayer said Monday.
Some Tumblr users will take time to migrate to Yahoo's core websites and might never join the fold of its parent, Ms. Mayer said. At the same time, the blogging service offers several advantages Yahoo executives said could benefit Yahoo, like a successful track record snagging users on mobile devices.
"Part of our strategy here is to let Tumblr be Tumblr," Ms. Mayer said.
Yahoo is paying a premium for the company. When Tumblr last raised money, in late 2011, the $85 million venture-capital investment it received valued the company at $800 million.
Yahoo already has plans to generate more revenue from some Tumblr features like its top-of-site "dashboard" by possibly including some extra ads. Ms. Mayer credited the company for its already rich base of big-brand advertisers, which include all of the major film studios.
The deal is a big win for Mr. Karp, who remains a large shareholder, and the site's early venture investors, which include Union Square Ventures, Spark Capital and Sequoia Capital.
Ms. Mayer praised Mr. Karp for his enthusiasm for entertaining and compelling ads on other media, like TV, that can be "every bit as good as the content" when pitching products like cars.
"Where are the ads that are like that, where are the ads that are aspirational?" she asked. "We want that kind of richness in the online atmosphere."
The acquisition is a big bet for Yahoo, given Tumblr's financial performance so far. But Yahoo needs the growth. Its annual revenue has been stuck for years around $5 billion, and the company's big presence on personal computers hasn't translated well to mobile devices, where it lacks the advantage of Apple Inc.'s coveted hardware or Google's ubiquitous smartphone operating software, Android.
Yahoo Chief Financial Officer Ken Goldman said Yahoo expects its acquisition to add "relatively modest" revenue to its top line in the second half, when the deal is expected to close, with its contribution ramping up next year.
Meanwhile, Facebook and Google have demonstrated that a vast audience for free content can bring in significant advertising revenue.
New York-based Tumblr, founded in 2007, has 175 employees, more than 108 million blogs and, according to comScore Inc., had nearly 117 million unique users world-wide in March. That is up from around 58 million a year ago. The site is among a number of fast-growing startups, including online scrapbook Pinterest and news aggregation site Reddit.
Tumblr built that following by making it easy for people to create blogs and post writings, photos and videos. Tumblr users can follow other people's updates the way Facebook users follow friends—and easily share their work. With these features, Tumblr lowered the bar for online publishing and effectively merged blogging with social media.
In a pattern typical of young Internet companies, Mr. Karp, the CEO, has focused on increasing his site's user base while placing a lower priority on making money. The company didn't begin placing ads on its service until last year. In recent news reports, Mr. Karp, who once told the Los Angeles Times he was "pretty opposed to advertising," said Tumblr generated $13 million in revenue last year.
Yahoo believes it could help Tumblr bring in more money by selling ads—boosting its own revenue in the process, people familiar with the matter said. Tumblr potentially offers personal data on millions of individual users, and an ability to help Web content go "viral" as friends share popular posts. Data is at the heart of Yahoo's ability to sell online advertising across its sites, based on what it knows about its people's interests.
Write to Spencer E. Ante at [email protected], Joann S. Lublin at [email protected] and Amir Efrati at [email protected]