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Yahoo's Billion Dollar Bet on Tumblr

If Yahoo can acquire sites like Tumblr and Hulu while pushing beyond their history of being a Web portal, spending a billion dollars on a platform like Tumblr and/or Hulu could well be the cheapest way for a company of that size and magnitude to not only save itself, but rebuild its brand reputation as a leader in the digital world.
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A picture taken on May 20, 2013 in Paris, shows logos of the brands Tumblr and Yahoo! on the screen of tablets. Yahoo! bought today the popular blogging platform Tumblr for $1.1 billion. AFP PHOTO / FRED DUFOUR (Photo credit should read FRED DUFOUR/AFP/Getty Images)
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A picture taken on May 20, 2013 in Paris, shows logos of the brands Tumblr and Yahoo! on the screen of tablets. Yahoo! bought today the popular blogging platform Tumblr for $1.1 billion. AFP PHOTO / FRED DUFOUR (Photo credit should read FRED DUFOUR/AFP/Getty Images)

What is Yahoo going to do with Tumblr? What is Tumblr going to become with Yahoo?

Those seem to be the billion dollar questions, these days. After it was announced that Yahoo would be acquiring Tumblr for a little over a billion dollars, the online channels (and traditional media outlets) went crazy in an "Instagram just got bought by Facebook for a billion dollars" kind of way. And, while the discourse continues, we're now hearing rumours about a few other billion (or close to it) dollar acquisitions that could be right around the corner as Waze deliberates between Google or Facebook and Yahoo could also be looking to pick up Hulu. The money is flowing, but will the revenue follow?

Are we asking the right questions?

Like Instagram, Tumblr has no immediate and clear revenue model (the company reportedly made about $13 million in 2012 with an estimated $100 million for 2013 in advertising revenue). The rumours -- in a post-acquisition world - are around everything from how Tumblr will have to deal with the significant amount of blogs that are porn, adult content related or copyright violations to the opportunity and potential for native advertising (if anyone can agree on a legitimate definition of what that means). Others think that this play by Yahoo was to buy a younger demographic, whose only encounter with Yahoo may have happened when they had to use their parent's computer and opened up a Web browser. Suffice it to say, that we may well be asking the wrong questions.

Could it be a question of brand over revenue?

When Samsung was fined close to one billion dollars and forced to pay Apple damages after a patent infringement trial in August of 2012, there were some interesting discussions online about what this all meant. The jury found that critical features of the Samsung smartphones and tablets design were copied from Apple's iPhone and iPad. The jury backed Apple's claim against the South Korean firm, but there's something bigger -- that when placed in context makes this all seem meaningless. At the time, Samsung was the biggest maker of smartphones in the world and the biggest of the Android smartphones as well. A billion dollar fine seems like a low-cost of entry to become number one in that industry, doesn't it? And, that's without considering that the fine could have been a lot less or the jury ruling could have gone in another direction.

The true Face(book) of Instagram.

Similarly, prior to Facebook's acquisition of the social mobile photo sharing app, Instagram, the world's largest online social network was grappling with the mobile revolution. Facebook was built for the Web and in 2011, their mobile experience was a tough sell. With photo sharing being one of the largest components of the Facebook user's experience, the company could not allow a small startup like Instagram to grab that much market share in the mobile space as the consumer's habits were rapidly evolving. As Facebook raced to update their platform and develop a more comprehensive and responsive mobile experience, the acquisition of Instagram gave them a significant position in the mobile sphere. Consider this: half of Facebook's page traffic now comes from mobile. Who knows if Facebook could have proven their mobile snuff without buying Instagram. Was that billion dollar acquisition about the potential revenue of Instagram or about building the perception and future of the Facebook brand? It's hard to argue that Facebook doesn't understand mobile today... and this shift happened in under two years. Who says it takes a long time to turn a big ship?

The future of Tumblr isn't Yahoo.

Back in February of 2011, The Huffington Post sold to AOL for $315 million. That seems like old news, but out of all of these acquisitions, it could be the best example of what Tumblr will become. AOL had many properties, but were still widely known as an Internet Service Provider by most, and the jokes about CD-Roms and "you've got mail" were hard to shed. Between the acquisition of The Huffington Post, new leadership, the purchase of TechCrunch and the realignment of some of their other digital properties, The Huffington Post became the catalyst that moved the AOL brand from CDs and mail to a modern day publisher. If Yahoo can acquire sites like Tumblr and Hulu while pushing beyond their history of being a Web portal, spending a billion dollars on a platform like Tumblr and/or Hulu could well be the cheapest way for a company of that size and magnitude to not only save itself, but rebuild its brand reputation as a leader in the digital world. Any revenue from that billion dollars that they can recoup from the Tumblr or Hulu platform, could well just be gravy in the grand scheme of things.

What's your take?

Mitch Joel is president of Twist Image - one of North America's largest independent digital marketing agencies. His first book, Six Pixels of Separation, named after his highly successful blog and podcast of the same name is a business and marketing bestseller. His latest book, CTRL ALT Delete, is out now.

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