Will Yahoo's acquisition of Tumblr work/make money?
If you haven't heard, Yahoo agreed to purchase Tumblr for $1.1 billion: http://www.nytimes.com/2013/05/20/technology/yahoo-to-buy-tumblr-for-1-1-billion.html
And if you're not familiar with Tumblr, it's kind of a big deal (/Ron Burgundy). Quantcast has it ranked as the 24th biggest site on the Internet. Alexa has it ranked as the 34th biggest site. In addition, it has a very young, hip demographic that a company like Yahoo covets.
However, Tumblr is currently not making much money. Nowhere near enough to justify the $1.1 billion price. It has potential for monetization, but will Yahoo's attempts to monetize alienate the community and ruin the brand? Or does Yahoo not care about turning a profit and is just looking to get an infusion of younger demos into its aging offerring?
Simply put, will Tumblr make money or work for Yahoo?
It's a great question. There are a bunch of competitors popping up. I am not sure many of Tumblr's users will be ok with flashy ads, but the company will need to figure out some way to make money. I can see Yahoo wanting to attract the younger Tumblr user base to their platform. Will be interesting to see what happens.
I'd like to think if Yahoo was prepared to pay $1bn for anything, it would be because they think it's worth it to them.
If that decision seems crazy to outsiders it could simply be that as outsiders we are unaware of information to which only they have access. So perhaps the question should be - "What is Yahoo's long term strategy?". The clue here is that they believe Tumblr fits in with those hidden plans better than having $1bn in the bank.
I'll try answering my own question... My guess is they should be able to make money seeing how popular the site is. And even if they don't earn back their investment any time soon, the biggest benefit might be using it as a promotional tool to get a younger audience for their other products. If they can use Tumblr to drive people to their profitable features, maybe it'd be worth it.
As far as how they could make money, I don't think peppering Tumblr pages with ads is a great idea. Feels like it would alienate the audience. I admittedly don't have a ton of experience with Tumblr but maybe Twitter or Blogger is a decent monetization comparison. Maybe Melissa Mayer goes back to her Google roots and tries to make money off of search. Will be interesting to see. Like Clive alluded to, Yahoo definitely has a lot more insight than all of us can possibly have.