After Small Acquisitions, Yahoo Goes Big With Tumblr

Tumblr Founder and CEO David Karp photographed at the company's New York office Photograph by Elizabeth Lippman/Bloomberg

Updated at 4:15: Adds info on invitation to Yahoo event Monday.

Since Marissa Mayer took over Yahoo! last year, the company has made a number of relatively small acquisitions. Now, it seems, it is going for the big one.

The company is reportedly in serious talks with Tumblr, the blogging service, about an acquisition that could top out at more than $1 billion. The deal could bring together one of the hippest companies in tech with one that is trying to shed its reputation as maybe the squarest. On Friday, Yahoo sent an invitation to reporters for a press event taking place in New York on Monday. Because Mayer is scheduled to attend, and because the event is taking place in Tumblr’s home turf, this set off another round of speculation that the news would be Tumblr-related. On the other hand, the invitation came in an email attachment labeled Flickr Invite. In any case, the fact that Yahoo sending out a press invite excites tech bloggers could be seen as a small victory for the company.

Tumblr is pretty much everything that Yahoo is not. The blogging service is social, does well on mobile, and is popular with kids. According to the company, users have put up 50.7 billion posts stretching over 107.9 million Tumblr blogs. Forbes has reported that Tumblr’s revenue in 2012 was $13 million. In large part, the service could hold appeal because it offers Yahoo a path back to cultural relevance, which presumably leads to ways Yahoo can shore up its Web advertising business. On a side note, Tumblr also has the reputation of being perhaps the best-looking social media site, which may hold specific appeal for Mayer, who has the reputation of being quite interested in aesthetics.

But Tumblr is in ascendance at the moment, and one thing that could give it cold feet is Yahoo’s past reputation for handling acquisitions badly. Most memorably, it let Flickr twist in the wind after acquiring it in 2005, and Instagram took over the helm for photos on mobile. Marissa Mayer is trying to change that. She has quickly turned her focus back to Flickr, and its revamped mobile app has met with rave reviews. She has also brokered 10 other acquisitions, including Jybe, a food and entertainment recommendation company; OnTheAir, a video service; Propeld, which makes location-based apps; Summly, a service that summarizes news stories, and, a content curation site.

Moreover, Yahoo could have some benefits for Tumblr. First off, even though its stack of cash is not quite as high as it was when Mayer took over, it still has plenty, largely due to its $830 million stake in Alibaba, the Chinese e-commerce company. And while Tumblr has established itself as a potentially attractive location for advertisers, it is still in the early stages of figuring out how to turn that audience into income, a problem that has bedeviled other hot social media companies. Yahoo may be able to help it tap into that potential.