Why did Yahoo Spend $1.1 Billion to Buy Tumblr?

First, we should understand the players that were involved with this transaction. Yahoo is an Internet pioneer of sorts that has traditionally offered Internet search and directory services to its users. Founded in 1995, Yahoo was one of the first large scale web properties. Today Yahoo offers search, news, web mail, video sharing and many other services to its estimated 625+ million visitors each month.

Tumblr, founded in 2007, is a blogging platform/social media site that gives its users the ability to post short form blog entries on their Tumblr hosted websites. These site, commonly know as “tumblelogs,” are generally focused on a specific topic and the entries made are shorter than traditional blog entries. At the time of the Yahoo acquisition, it was estimated that Tumblr had in excess of 100 million users.

On Monday, May 20, 2013 Yahoo announced it was acquiring Tumblr for $1.1 billion dollars.

Acquisitions are not new in Silicon Valley; Facebook bought Instagram, Google bought Youtube, ebay bought PayPal and AOL (remember them) bought Huffington Post and Yahoo bought flickr, the photo sharing service in 2005 for $35 million dollars.

Why would Yahoo acquire a service like Tumblr? Browse the Internet and you’ll find reasons ranging from it being an aqui-hire of Tumblr’s founder David Karp to it being simply for keeping Yahoo in the media. I’d lean more towards the realistic reason that the Wall Street Journal outlined in their article on May 20, 2013; Tumblr fills a void in Yahoo’s portfolio by providing a social service that they lacked. Sure, they had flickr which has a social aspect to it, but that is focused on photos, not conversation. The Tumblr acquisition also brings 100 million + users to Yahoo. Considering the age of Yahoo and their direction over the last 10 years, I’d wager that their average user demographic leans towards the older side of the age scale while Tumbler leans younger. The Tumblr acquisition could be an attempt to bring that younger crowd to Yahoo to keep them “in play” for the future.