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Yahoo Buys Tumblr for $1.1 Billion to Be Hip

The combination of Tumblr and Yahoo is expected to grow Yahoo’s audience by 50% to more than a billion monthly visitors

Looking to hang with the cool kids, Yahoo CEO Marissa Mayer, swearing "not to screw it up," is buying Tumblr for a cool $1.1 billion, a big chunk of her $5.4 billion pocketbook since it's "substantially all" in cash.

The New York-based acquisition will remain a separate business with its 26-year-old founder, David Karp, sticking around as CEO.

To try to separate the acquisition from the taint of the aging Yahoo, which is scorned by many of Tumblr's users, Yahoo said the "product, service and brand will continue to be defined and developed separately with the same Tumblr irreverence, wit and commitment to empower creators."

Karp, soon to be worth an estimated $250 million, said, "Before touching on how awesome this is, let me try to allay any concerns: We're not turning purple. Our headquarters isn't moving. Our team isn't changing. Our roadmap isn't changing. And our mission - to empower creators to make their best work and get it in front of the audience they deserve - certainly isn't changing. But we're elated to have the support of Yahoo and their team who share our dream to make the Internet the ultimate creative canvas. Tumblr gets better faster with more resources to draw from."

Tumblr describes itself as a re-envisioning of tumblelogging, a subset of blogging that attracts quick, mixed-media posts. It reportedly sees upwards of 300 million unique visitors a month and gets 120,000 sign-ups a day, making it one of the fastest-growing social media networks.

It claims 900 posts a second and 24 billion minutes spent on-site a month. More than half of its users use its mobile app and do an average of seven sessions a day.

Mayer preened in a conference call - that Karp didn't make - that users include all 10 of the top Hollywood studios and eight of the top 10 global brands.

Tumblr has raised $125 million from its VCs since it was started by the high school drop-out in 2007. Its investors include Union Square Ventures, Spark Capital and Sequoia Capital.

The combination of Tumblr and Yahoo is expected to grow Yahoo's audience by 50% to more than a billion monthly visitors and grow traffic by maybe 20%.

Yahoo says Tumblr can deploy its personalization technology and search infrastructure to help its users discover creators, bloggers and content. In return, Tumblr brings 50 billion blog posts (and 75 million more arriving each day) to Yahoo's media network and search and Yahoo is hungry for the content.

Yahoo says it will integrate Tumblr into its home pages for users.

The two companies are then supposed to work together on getting advertising, where Yahoo has lost a lot of share to Google and Microsoft.

Of course it's still unclear whether sites like Tumblr can make money, or even adapt to mobile.

It wants to do $100 million worth of business this year, but only saw $13 million in Q1. It did $13 million all of last year. And Yahoo will have to tiptoe around Tumblr's (ahem) adult content. Yahoo can't help much with mobile unless some of Mayer's recent acqui-hires pitch in.

Tumblr only started trying to sell ads a year ago and the New York Times reports that it "burned through an estimated $25 million in cash last year, and struggled to raise additional money at an acceptable valuation." As a result, Karp started reaching out to companies like Facebook, Microsoft and Google, winding up in Yahoo's lap Sunday morning when Yahoo's board approved the deal.

As to Karp, who quit school at 15, Mayer said "I've long held the view that in all things art and design, you can feel the spirit and demeanor of the creator. That's why it was no surprise to me that David Karp is one of the nicest, most empathetic people I've ever met. He's also one of the most perceptive, capable entrepreneurs I've ever worked with. David's respect for Tumblr's community of creators is awesome. I'm absolutely delighted to have him join our team."

Slightly bigger than Facebook's billion-dollar acquisition of no-revenues Instagram last year, the deal is supposed to close sometime in the second half and be accretive.

The money Mayer's spending comes from selling off a half of Yahoo's one brilliant investment: Alibaba, the Chinese Internet giant. Otherwise it has a nasty reputation for wasting money on acquisitions it winds up closing down or leaves to rot.

It's unclear if Tumblr's staff of 175 people will be willing to work under Yahoo's shadow although according to Mayer the whole management team signed on. Ditto its users, some of whom have tumblred their dismay. So to play it safe Tumblr won't be branded a Yahoo property.

Mayer, who's trying to save Yahoo from itself despite its hundreds of millions users, has reportedly also been talking to video-streaming house Hulu.

Karp started his own development agency, Davidville, in 2005 and in 2007 his team launched Tumblr. He has also invested in Kitchensurfing, Picturelife and Circa.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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