Yahoo May Buy Tumblr for $1 Billion

The Internet portal has held "serious talks" to acquire the micro-blogging service


Yahoo CEO Marissa Mayer says she's pleased the website's monthly user traffic is up 20 percent over the past 15 months.

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In a possible move aimed at snatching up the young social media demographic, Yahoo has had "serious talks" about acquiring Tumblr, with the price tag reportedly being as high as $1 billion.

[CHECK OUT: U.S. News on Tumblr]

Several sources told AllThingsD Thursday that Yahoo CEO Marissa Mayer has been meeting with top Tumblr executives, including Tumblr CEO David Karp. The rumors of a potential acquisition come after Yahoo CFO Ken Goldman spoke at JP Morgan's Global Technology conference about the need for the company to attract the 18-to-24-year-old demographic in an effort to make Yahoo "cool again."

Tumblr is a micro-blogging platform that has grown in popularity over recent years, hosting blogs that have gone on to become or create extremely popular memes.

The potential acquisition would be Mayer's biggest move since becoming Yahoo CEO in July. Since taking the reins, Mayer has revamped the Yahoo homepage along with Yahoo Mail, and spent millions on smaller acquisitions, including a $30 million purchase of Summly, a mobile news app created by a 17-year-old British developer.

AllThingsD also reported earlier this month that Yahoo was in preliminary talks to purchase video streaming service Hulu.

The reported $1 billion price tag for Tumblr would be one of the biggest acquisition deals in tech history. By comparison, Facebook bought photo-sharing service Instagram for $1 billion, but due to Facebook's stock troubles, the final price Facebook paid was $741 million.

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The pricey tag for the micro-blogging site comes as Tumblr continues to rake in cash and clicks. According to AllThingsD, in a series of fundings since 2007, Tumblr has raised $125 million, and has a reported valuation of $800 million. On its homepage Friday morning, Tumblr lists that its service has nearly 108 million blogs with over 50 billion posts. According to website metrics service Quantcast, Tumblr has seen nearly 5 billion pageviews in the last month, with over 64 million unique visitors.

Ad Week says talks between the two companies are fluid and a deal could possibly be completed by this weekend. However, tech website GigaOm says its possible that Facebook could swoop in at the last minute, due to the close relationship between Tumblr's Karp and Facebook CEO Mark Zuckerberg.

GigaOm and TechChrunch speculate that Google could also be interested in acquiring Tumblr. Forbes reports that Microsoft has held meetings with Tumblr brass as well.

Maggie Fox, CEO of the Toronto-based Social Media Group, says the rumored deal is a "signal action" for Yahoo.

"It's important for them to demonstrate that they are in the game," Fox says. "If Yahoo is willing to take this risk on Tumblr, you can bet that Tumblr is going to be really strategically important to Yahoo. They could not afford to fail in the acquisition in the way that Google could."

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Pradeep Chintagunta, professor of marketing at the University of Chicago's Booth School of Business, says the potential deal fits into Yahoo's strategy of "SoLoMo," a concentration on social, local and mobile growth.

"I think the fact that they are already strong on the local front, I think the idea is to strengthen their position in the other two dimensions, and I think [Tumblr] fits it well with what they have been trying to accomplish," he says.

Fox says that at a recent speaking event in New York, Karp highlighted that Tumblr has a core value focus on "helping people find stuff they like." She says that with Yahoo's back-end technology, Karp's vision could be transformed in a number of positive ways.

"Could this partnership potentially lead the way to algorithms and technology that actually creates intelligent search, that really does help people find things that they like but they didn't know about, serving things up in a way that isn't based on what you're looking for, but based on what you've liked in the past," Fox says.

Chintagunta says that if the deal goes through, the biggest question for Yahoo is how Tumblr will be integrated into Yahoo's existing properties.