Photo Credit: www.geek.com
Yahoo recently announced their acquisition of Tumblr (a blogging and social media platform). Everyone knows that good business leaders sometimes have to take risks. The concern in the case of this acquisition is less about taking a risk and more about wishful thinking. Since yahoo’s inception in 1997, the company has undergone seventy-seven acquisitions and mergers, of which only a handful were successful. In fact, only two of their best known top five mergers stuck. Perhaps the company should turn to internal organizational development rather than continuing the pattern. The outcome of the Tumblr acquisition remains to be seen, but below are some considerations.
Pros and Cons of the Yahoo/Tumblr Acquisition:
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Pros |
Cons |
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This is a good deal for Tumblr financially as they are receiving $1.1 billion. |
Based on Tumblr’s $13 million revenue, Yahoo’s $1.1 billion spent on Tumblr is a loss. Yahoo is simply over-paying. |
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Yahoo will benefit from reaching a new younger audience. |
Yahoo plans to integrate users and content from Tumblr into Yahoo, but must be careful not to lose their current market in the process. |
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John Saroff of Fortune projects that Tumblr could begin generating $108 million revenue. |
Saroff sees the possibility that Yahoo could pay for the deal in less than ten years, however, will the shareholder still be around? |
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If Tumblr and Yahoo integrate well, both stand a chance to benefit greatly and attain more consumer loyalty. Tumblr faces little risk having already secured the $1.1 billion. |
If yahoo again fails to integrate successfully, yahoo has seen a great loss after investing $1.1 billion and the effort to merge. |
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Yahoo is likely to see a huge boost in the mobile market finally (the company currently only has one app, where Tumblr has seen success with apps). |
Overall neither company has mastered online advertising, which is cause for a bleak outlook. |
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This acquisition could grow Yahoo and widen their reach. |
This acquisition could lose money and waste valuable time in the process. Sometimes patience and internal development is more profitable than merging. |
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It will be great for Yahoo if their advertising plans with Tumblr pan out. Again, this would aid in capturing a younger audience. |
The big question remains: how will Yahoo implement the ads without compromising the privacy and freedom of current Tumblr users? Moreover, even if Yahoo manages this without repelling current users, who will they get to buy the ads? |
Innovation is a tricky thing, because progress would never be made in its absence. However, are acquisitions truly the answer? It is easy to be blinded by the lure of risk taking without realizing the financial and people side embedded within the logic. Saikat Chaudhuri, assistant Professor of Management at the University of Pennsylvania, sheds light on the biggest challenge of acquisitions “if one places sufficient resources and project management strategies in the right places, it’s possible to manage the complexity. You can learn how to do it. But uncertainty, by its very nature, requires constant adjustment. This type of flexibility is tough to achieve, especially in the middle of integration activity.” So the issue isn’t Yahoo’s ability to manage complexity, the true concern is the unpredictable nature of an acquisition, much less one that seems so uncertain from the start. While the business world can only watch from the sidelines, it would be wise to take notes for the future.
