And now, the marriage of news aggregation and animated cat GIFs is complete. Yahoo announced Monday it would buy Tumblr for $1.1 billion, but many are wondering if that's too much to pay for the microblogging site.
There's no doubt that Yahoo is getting something very valuable in buying Tumblr: a new, diverse and engaged audience. Yahoo has a larger audience, but Tumblr's audience is overwhelmingly younger than Yahoo's and slightly more ethnically diverse. Figures from Quantcast show that nearly half of Tumblr's readers are 24 and under, and nearly three-quarters are 34 and under. Meanwhile, Yahoo's users skew older. Quantcast estimates that half of Yahoo's users are 35 and older. And Tumblr's audience is also slightly less Caucasian and more Hispanic than Yahoo's.
In a Monday morning conference call with investors, Yahoo CEO Marissa Mayer estimated the total audience for the two sites could reach around 1 billion people. And though there's "some overlap" between the two, Mayer said she thinks the expanded audience will benefit both sites.
"Basically this allows us to really engage both demographics with the other company," Mayer said. While she said Yahoo plans to "let Tumblr be Tumblr," she also said the company plans to boost advertising in users' Tumblr "dashboards," or newsfeeds.
In addition, Mayer pointed to the fact that Tumblr's image-heavy format makes it a natural partner to Yahoo's photo-sharing service Flickr, bought in 2005.
But reaching a billion sets of eyes isn't necessarily worth a billion dollars, for a number of reasons. One is that a billion dollars is simply a lot of money.
"It seems expensive," says Colin W. Gillis, an analyst at BCG Financial. "Typical deals are one to two times revenue."
One billion dollars is far more than one to two times the size of Tumblr's estimated revenue. According to Forbes, the company earned $13 million in 2012 and hopes to get to $100 million in 2013.
And it's not that Yahoo is buying a lucrative demographic. Two-thirds of Tumblr's users earn $50,000 or less. Meanwhile, the majority of Yahoo's users earn $100,000 or more, according to Quantcast estimates.
And like many other once-popular websites – Friendster, AltaVista, MySpace – it's also possible that Tumblr's shelf life could be shortened by any number of factors: mismanagement, competition, or its cool factor simply wearing off. Yahoo has seen this unfortunate trend up close. Flickr traffic has dropped off dramatically since its heyday, facing competition from other services like Instagram and Twitpic, and Yahoo also watched the once-popular Geocities die after buying it in 1999. That web-hosting service shut down its U.S. operations in 2009 and now only operates in Japan.
Not that Yahoo is blindly throwing $1.1 billion dollars at Tumblr. Yahoo CFO Ken Goldman told listeners on Monday's investor call that the company looked hard at figures on other recent tech acquisitions and Tumblr's demographics and agreed that $1.1 billion is a fair price.
"We feel quite comfortable that this makes a lot of sense," Goldman said.