Yahoo! Inc.’s $1.1 billion acquisition of blogging network Tumblr Inc., announced Sunday, is Chief Executive Officer Marissa Mayer’s bid to lure users and advertisers with her priciest acquisition to date.
Tumblr, headquartered in New York, will continue to host its more than 108 million blogs, while CEO and founder David Karp, 26, will remain in charge of the website, Yahoo said.
Mayer, CEO of the biggest U.S. Web portal, is betting that Tumblr will help transform Yahoo into a popular destination in social networking as she challenges Google Inc. and Facebook Inc. in the $17.7 billion display ad market.
The price — about a fifth of Yahoo’s $5.4 billion in cash — underscores the deal’s importance to Mayer’s turnaround effort of the company, according to Zachary Reiss-Davis, an analyst at Forrester Research Inc.
“It’s an aggressive move,” Reiss-Davis said. “They are saying, ‘Where is our next group of people who are going to spend many hours per week on Yahoo properties?’ It’s big bet that the answer is going to be Tumblr users.”
Founded by Karp in 2007, Tumblr grew to log more than 13 billion global page views in the past month. The site offers a free service for publishing blogs on the Web and mobile devices, and tools for sharing photos and other content.
While Tumblr recently began letting advertisers pay for prominent placement and has said it expects to become profitable this year, Karp has resisted covering webpages with promotions to avoid alienating Tumblr’s younger audience.
The deal will make a multimillionaire out of Karp, who founded the company using money and experience he had acquired as a software consultant for the website UrbanBaby. Prior to that role, Karp interned at online-video creator Frederator Studios and worked as a salesperson at a Tekserve store in New York, according to his profile on LinkedIn’s site.
Karp grew up on Manhattan’s Upper West Side and dropped out of high school before moving by himself to Tokyo when he was 17. He founded Tumblr after returning to New York and still hasn’t earned his high-school diploma. The company’s headquarters in New York is adorned with eclectic artwork.
Yahoo, which makes almost all of its revenue from online promotions, will inherit the challenge of making money from a site while trying to preserve its cool factor, Reiss-Davis said.
“They have to balance keeping those users actively using Tumblr, while at the same time adding advertising and putting monetization around it,” he said. “Those are very difficult tasks to balance against each other.”
Tumblr’s content may turn off some advertisers. The site’s terms of service permit nudity and other controversial material, and at least one pornographic site ranks among the 20 most-popular Tumblr blogs, according to Quantcast Corp.
Among Tumblr’s backers, Union Square Ventures in New York and Boston-based Spark Capital are the biggest winners. The firms led Tumblr’s first two financings, a $775,000 round in 2007 and a $4.5 million round the next year.
Sequoia Capital joined as an investor in late 2010 as part of a $30 million funding round. Tumblr then raised $85 million the following year, with firms including Greylock Partners, Insight Venture Partners, and Draper Fisher Jurvetson’s Growth Fund joining the existing investors.
Mayer has purchased at least 11 companies in her 10 months as CEO, from mobile app makers Stamped Inc. and Jybe Inc. to Summly, the news-reading application created by teenager Nick D’Aloisio. Before Tumblr, most of her acquisitions have been small and focused on talent acquisitions. Tumblr ranks among Yahoo’s largest acquisitions, which include the $5.7 billion purchase of Mark Cuban’s Broadcast.com and a $3.6 billion deal for Web-hosting site Geocities in 1999. Mayer’s push has made little headway to reverse a decline in display, an area where Google and Facebook are gaining ground.