Rumors are flying this evening that Yahoo! is on the verge of acquiring Tumblr. A deal may be finalized this weekend, so long as Yahoo CEO Marissa Mayer can get approval from Yahoo’s board of directors.
Yahoo is thought to have offered $1.1 billion for Tumblr. The company apparently considers itself worth more than that and is trying to get Yahoo to pony up even more, even though it has paltry revenue compared to more established tech titans.
The report about the behind the scenes negotiations reminded me of a news item from fourteen years ago: the sale of GeoCities to Yahoo for $3.4 billion. Yahoo spent more than three times the amount of money on GeoCities in 1999 that it is proposing to spend now to acquire Tumblr. What happened to GeoCities? It was ingloriously shuttered a few years ago. So much for that acquisition.
The rationale for buying GeoCities was that it would add a lot of value to Yahoo. That’s what geniuses like Scott Appleby said at the time:
Analysts say the potential acquisition of GeoCities, or a company like it, is a must for Yahoo!.
“I really think it’s the only strategy,” says Scott Appleby, an analyst with ABN Amro, adding that the growth cycle of the Internet is still in its infancy.
”Customers and consumers are still building behavior patterns,” he says. “Now is the time to build your network, now is the time to build your brand and AOL has proven that now is the time to build your business.”
In retrospect, the Yahoo-GeoCities deal doesn’t look so rosy. Yahoo is still around - but GeoCities is not. So much for GeoCities being a must-have.
Research has repeatedly shown that most corporate mergers and acquisitions fail to create value for shareholders. The business press loves to report on deals and rumored deals, but that has no bearing on whether they make business sense. That explains why dealmaking generates more headlines than returns.
Which leads us to ask: Tumblr, do you *really* want to sell to Yahoo? This is the company that bought Delicious and was going to close it before it found a buyer to keep it running. This is the company that let Flickr go into a stall. And this is the company that bought GeoCities for a whopping $3.4 billion in 1999 and then extinguished it ten years later. Don’t think the payout you’ll be getting will be any kind of insurance against a similar fate for Tumblr down the road.
So, David Karp and team, think long and hard before you decide to sell. Look at what happened to the other companies that Yahoo bought.
And heck, ask Yahoo about it. You might want to drop the word “GeoCities” during the negotiations and see what kind of reaction that elicits.