Yahoo! / Tumblr – Diamond in the rough

Tumblr is exactly what Yahoo! needs to expand its coverage of Digital Life.

• The wires are alive with the idea that Yahoo! will announce its $1.1bn acquisition of Tumblr today at its event in New York.
• 10x 2013 revenues looks punchy but the usage stats point to a website where the traffic is substantially under- monetised.
• Tumblr had 184m unique visitors and 12.1bn page views last month (Quantcast).
• Given that the site is almost unusable without an account, I estimate that the number of unique visitors is roughly equivalent to the number of accounts that the site had.
• 184m is a big number. 50% bigger than the number of accounts on Yahoo! itself and comfortably above Radio Free Mobile’s 100m watershed between viability and failure.
• Furthermore Tumblr is doing reasonably well in mobile which is somewhere that Yahoo! needs to urgently address.
• Most interesting of all is the social networking functionality that Tumblr enables.
• Blogging is all well and good but it is not a major activity that users do on mobile devices.
• Social Networking on the other hand is, with users spending 24% of all their time on smartphones using social networking functions.
• This is where Tumblr offers Yahoo! the users, the page views, the usage and the functionality.
• All it has to do is tweak it a bit and make it a more viable competitor to Facebook.
• If Yahoo! can do this well, then users will be much more inclined to spend time on Yahoo! services.
• This means that Yahoo! will learn more about its users and be in a much better position to monetise traffic flowing through its servers.
• Yahoo! has a vile history with acquisitions (Flickr, Geocities etc.) but I think things at Yahoo! have changed since July 2012.
• Hence, I am hopeful that Yahoo! will not make a mess of Tumblr and that the acquisition will see Yahoo! meaningfully expand its appeal to users.
• This will bring Yahoo! further into contention as one of the major ecosystems in the mobile smartphone world.
• Yahoo! remains my dark horse as an ecosystem contender and if it gets it right, there is much further to go on the share price.
• However, if it gets it wrong, this will be another expensive diamond that ends up as a worthless piece of coal.