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Yahoo looks to regain its cool with Tumblr deal

Tuesday - 5/21/2013, 3:52pm  ET

FILE - In this April 18, 2011 file photo, the Yahoo logo is displayed outside of the offices in Santa Clara, Calif. (AP Photo/Paul Sakuma, File)

MICHAEL LIEDTKE
AP Technology Writer

SAN FRANCISCO (AP) -- After falling woefully out of fashion, Yahoo wants to be cool again while catering to the capitalistic demands of its shareholders. That goal led CEO Marissa Mayer to make a $1.1 billion bet on online blogging forum Tumblr in a risky acquisition that revolves around the vision and instincts of a 26-year-old entrepreneur who dropped out of high school to pursue his dream of bringing more beauty and creativity to the Internet.

The deal announced Monday is Mayer's boldest move since she left Google 10 months ago to lead Yahoo's latest comeback attempt. It marks Yahoo's most expensive acquisition since it bought online search engine Overture a decade ago for $1.3 billion.

While hailing Tumblr as a fount of creativity that attracts 300 million visitors each month, Mayer told analysts Monday that she is "making a sincere promise to not screw it up." Yahoo said its founder, David Karp, will remain in charge and will keep Tumblr's headquarters in New York to retain the same "irreverence, wit and commitment to empower creators."

Tumblr's audience, which boasts a large concentration of teens and people in their early 20s, is already fretting that the service is going to become more stodgy and commercial under the ownership of an 18-year-old company that seems ancient by Internet standards. Advertising largely has been a missing ingredient so far as Tumblr, like many online services in their early stages, focused on building a loyal audience before turning its attention to making money. By purchasing Tumblr, Yahoo will have more opportunities to sell ads.

"I can't help but be concerned that Yahoo will 'Yahooize' Tumblr and make it as irrelevant as the mother ship," said Jennifer Grant, 36, who has a Tumblr blog.

Founded in 2007, Tumblr emerged as a trendy online hangout by providing a blogging service that makes it easy to share posts, photos, video and other content in an enthralling mosaic of interlocking information. Tumblr forums are devoted to such diverse topics as art, architecture, food, politics, pets and fashion.

Although there are several competing services for people to blog, Tumblr makes it easy to create, discover and share content. Tumblr users rely on a dashboard to pinpoint the kinds of blogs that they want to track. Tools help users pass along posts that interest them.

The service says it has amassed more than 50 billion posts from 108 million blogs, with some 75 million new posts every day. More than half of Tumblr's users connect through its mobile app and engage in an average of seven visits per day.

Mayer is betting that Tumblr will provide Yahoo with a captivating hook to reel in more traffic and advertisers on smartphones and tablet computers. That rapidly growing market is expected to become even more important during the next decade as people increasingly consume digital content on mobile devices instead of laptop and desktop machines.

Tumblr could also help Yahoo recapture some of its cachet with teens and adults in their early 20s, a demographic that has become tougher for Yahoo to reach in recent years as it fell behind the technological curve and struggled to develop compelling services.

While Facebook has turned into a mainstream social network where even grandparents now connect family and friends, Tumblr has become one of the places where the cool kids hang out.

But Yahoo will have to manage Tumblr's next stage carefully to avoid driving away the Web surfers and mobile device users that had made Tumblr such an enticing takeover target.

Micah Gray, 22, a Tumblr user who lives in Denver, likened Yahoo to an old, rich uncle who shows up to a high school or college party and hops into the hot tub to the disgust of almost everyone else there. But "the owner of the house you're partying at sold the rights of the hot tub to him and he can use it whenever he wants and bring his other old, rich friends," Gray said.

On the other hand, investors will want to see results from the $1.1 billion price tag. Yahoo is paying mostly cash for Tumblr, dipping into what remains of a $7.6 billion windfall reaped last year from selling about half of its stake in Chinese Internet company Alibaba. Taking over Tumblr will devour about one-fifth of the $5.4 billion in cash that Yahoo had at the end of March.

Mayer is confident she can balance the needs of Tumblr's users and Yahoo's investors.

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