More than anything, Yahoo CEO Marissa Mayer's $1.1 billion acquisition of Tumblr
is about buying a new audience to better compete with Google.
In that sense, it's a typical media deal, one that might have been made by one of Mayer's predecessors in the Yahoo corner office -- or a broadcast or cable television network.
For a decade, as Yahoo bought sites such as photo-sharing service Flickr, old media companies were buying publishers of entertainment, sports or tech news -- as when CBS bought CNet for $1.8 billion in 2008 -- to gain a bigger Internet audience.
All those deals for traditional new-media content publishers came amid Google's rising dominance in online advertising.
Now, the new interest is in social-networking sites with youthful, active users -- regardless of whether these start-ups have figured out how to make money.
Mayer paid big bucks, for example, to get access to Tumblr's more than 100 million users, even though the site reportedly raised far more from investors last year than it sold in advertising -- about $120 million of the former, compared with $13 million of the latter.
Evaluating the deal's price by standard metrics such as price-to-sales makes it hard to justify, just as Google's $1.65 billion purchase of YouTube in 2006 left many Silicon Valley watchers scratching their heads.
But in her profligate pursuit to enlarge Yahoo's digital ad inventory for an attractive demographic, Mayer isn't alone; many tech and media companies want to get more social.
Last year, Microsoft spent $1.2 billion to acquire Yammer, a social network whose users work for large corporations. In May 2011, Warner Bros. bought movie-review site Flixster for its 24 million users -- reportedly outbidding Yahoo for the deal.
As Facebook begins to build its ad business, the pressure on Yahoo and others to get more social has risen.
That could lead to big pay-outs for start-ups such as Pinterest, a rival to the Instagram social network that Facebook CEO Mark Zuckerberg bought last year for $1 billion.
The company raised $200 million from investors in January, when it more than doubled its number of monthly users to 28 million from a year earlier.
Other acquisition targets could include older start-ups such as Etsy, an online market for artists and creative types with 60 million unique monthly visitors.
By comparison, when CBS bought CNet, the online tech network had 54 million unique users.
Fast-growing public companies such as Yelp, which averaged 100 million unique monthly visitors in the first quarter and is worth just under $2 billion, have market values small enough to make them potential targets.
The largest social network that's still private is Twitter, of course, but given that the company's last investment round valued it at a reported $11 billion, it looks more likely headed for an IPO than an acquisition.
Still, other targets could include hybrid social networks such as Kickstarter, whose users have invested in 100,000 start-up projects.
While the number of Tumblr users varies depending on whether you ask Yahoo or independent research firms, the blog publisher's user base is younger and growing more quickly than its new parent.
Advertisers love to get their message in front of the 18- to-34-year-old demographic, because those consumers are not only good at spending their own money but occasionally their parents' cash, as well.
Mayer needs to do something to boost ad revenue, which has been falling even though Yahoo competes in a growing market.
The online ad market grew 15% in 2012, according to the Interactive Advertising Bureau.
But in the first quarter, Yahoo revenue fell 7% from a year earlier, while Google's ad revenue rose almost 22%.
Facebook's ad revenue rose 43% during the period as the social network, as Google has done, has tweaked its technology to better take advantage of another seismic tech trend -- the rise of mobile users.
According to various industry sources, the price for online ads that run on portable tablet computers are approaching those served onto desktop PCs.
Even though the price of smartphone ads are somewhere between one-quarter and one-third those paid for desktop or tablet versions, their number is exploding as more consumers spend more Internet time on their phones.
For tech and media companies such as Yahoo looking to buy a chunk of the social media ad business, the formula will likely be to target sites whose users are young, mobile -- and expensive.
John Shinal has covered tech and financial markets for 15 years at Bloomberg Businessweek, the San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others.
Most Popular Stories
- American Airlines, US Airways Complete Merger
- ACA Delay Stresses Small Businesses
- Unemployed Wait as Lawmakers Debate
- Saab Gets Back into the Game; U.S. Auto Sales Soar
- Dell Offers Undisclosed Number of Employee Buyouts
- General Dynamics Plans 200 New Jobs in N.M.
- Authorities Close to Deal with JPMorgan Chase over Madoff Response
- Questions Remain in Jenni Rivera's Death
- U.S. Stocks Rise on Sysco Acquisition
- Harley Issues Motorcycle Recall