Yahoo reportedly set to dole out $1.1bn for Tumblr, but is it worth it?

Yahoo has apparently approved a US$1.1-billion cash deal to buy out blogging platform Tumblr.

The Wall Street Journal broke the news via Twitter, seemingly confirming rumours of the buyout, which have been floating around for a few days now.

Breaking: The Yahoo board has approved a deal to pay $1.1 billion in cash for the blogging site Tumblr. wsj.com

— Wall Street Journal (@WSJ) May 19, 2013

Tech pundits had expected Yahoo CEO Marissa Meyer to announce the acquisition at a scheduled press briefing tomorrow, but it looks like the cat got let out the bag a little early.

According to the Journal’s sources Tumblr will continue operating as an independent company once the acquisition has gone through.

It’s believed that the Tumblr buyout is part of a wider strategy to make Yahoo “cool again”. Yahoo! CFO Ken Goldman expressed the sentiment behind this strategy at JP Morgan’s Global Technology conference late last week.

“One of our challenges is we have had an aging demographic. Part of it is going to be just visibility again in making ourselves cool, which we got away from for a couple of years.”

From that standpoint, a Tumblr acquisition makes sense. The platform is sexy with serious appeal among younger users.

From an economic standpoint however, things aren’t quite so clear-cut. After all, as Google alumnus and influential media executive John Saroff notes there are a number of roadblocks standing between Yahoo! buying Tumblr and turning it into a money-spinner.

Sure, it could go down the advertising path. There would be tons of advertisers more than happy to get some mileage on some of the more popular Tumblrs out there. But Tumblr CEO David Karp has been vocal in his resistance to using traditional display advertising on the platform.

Tumblr’s minimalist aesthetic also means that it isn’t actually suited to traditional ads. Even just a banner and a couple of side ads could completely ruin the aesthetic of the platform’s best sites. Sure there are sponsorship options, but it’s unclear whether those would spin the kind of cash you need to validate a US$1-billion acquisition.

Then there’s the fact that some Tumblrs aren’t appropriate, never mind, suited to traditional advertising.

Finally there’s the fact that Tumblr doesn’t actually own most of the pageviews on the platform, its bloggers do. That means that if Yahoo wants to put ads on someone’s page, they will have to ask the person who runs the page for permission. Change that policy and it risks alienating the very people who made Tumblr so popular in the first place.

One possibility is that Yahoo will have to adapt which side of Tumblr it decides to leverage. Think about the history of blogging for a moment and you’ll realise that WordPress once held the position that Tumblr now does: it was a blogging platform with low barriers to entry. Now though it’s the web’s most popular content management system (CMS), powering websites like CNN, TechCrunch and Wired Magazine. The reason it’s survived is because it’s played on that strength and has continued to evolve to suit those users’ needs.

If Yahoo can leverage Tumblr as a serious contender in the CMS game, and spin a couple of side-earners off it, then it might have a realistic chance of turning the platform into something bought for its potential rather than its cool factor.