Yahoo can’t decide if it’s a media or tech company

Washington PostMay 20, 2013 

  • Yahoo and Tumblr, at a glance

    Yahoo is paying $1.1 billion to buy the popular blogging site Tumblr. It’s part of Yahoo’s comeback effort, after years in a financial funk. Tumblr will give Yahoo more opportunities to sell advertising. Here’s how the two companies compare:

    Tumblr

    Founded : February 2007 by software consultant David Karp and Web developer Marco Arment.

    Headquarters : New York

    Leadership: Founder David Karp, 26, is CEO. He owns a 25 percent stake in the company.

    Employees: 175

    Financials: Tumblr’s 2012 revenue was $13 million. The company’s net worth was estimated by Forbes at $800 million in 2011.

    Services: Blogging services where people share everything from snaps of their pets to videos, and stories from Dadaab, a Kenyan refugee camp.

    Yahoo

    Founded: 1994 by Stanford Ph.D. candidates David Filo and Jerry Yang

    Headquarters: Sunnyvale, Calif.

    Leadership: Marissa Mayer was lured from Google in July to become Yahoo’s fifth CEO in as many years.

    Employees: 11,300

    Financials: Yahoo’s 2012 revenue was $5 billion, or $4.5 billion after subtracting advertising commission. It has a market valuation of $28.8 billion.

    Services: A wide range of services, including search, email, photo sharing and news. AP

Yahoo’s acquisition of Tumblr for $1.1 billion, announced Monday, is a big gamble by Marissa Mayer, the company’s recently hired CEO.

The microblogging site is a valuable asset, but media accounts of Mayer’s thinking suggest she hasn’t come to terms with Yahoo’s fundamental dysfunction: that it can’t decide whether it’s a media company or a technology company.

Technology investor Paul Graham has written about his experience at Yahoo when the firm acquired his start-up in 1998. “One of the weirdest things about Yahoo when I went to work there was the way they insisted on calling themselves a media company,” he wrote. “The worst consequence of trying to be a media company was that they didn’t take programming seriously enough.”

The most successful software companies, including Microsoft (in its prime), Google and Facebook, have focused obsessively on recruiting the best programmers. In contrast, even in its early days, Yahoo viewed content as a generic commodity to be packaged and resold to advertisers.

That ambivalent attitude toward technology was one reason Yahoo lost its dominance of the search market early in the last decade. And it explains why Yahoo failed to capitalize on the early popularity of Flickr and del.icio.us, two sites Yahoo acquired in 2005 and has done little to improve since then. In all of these cases, Yahoo squandered an early lead as more nimble, programmer-focused companies built superior products.

“Most technology companies eventually get taken over by suits and middle managers,” Graham wrote. “At Yahoo, it felt as if they’d deliberately accelerated this process. The company felt prematurely old.”

Hiring Mayer away from Google was supposed to rejuvenate the firm. Yahoo’s board hoped Mayer, a computer programmer who had been immersed in Google’s hacker-centric culture for more than a decade, could bring some of Google’s cultural strengths with her to Sunnyvale.

But media reports of Mayer’s thinking about the Tumblr acquisition suggest that Yahoo’s culture may be rubbing off on Mayer more than vice versa. According to AllThingsD, which broke the news of the transaction over the weekend, Mayer became interested in Tumblr because it was “just the kind of property that Yahoo needed to make it both ‘cool’ and relevant to new consumers.”

This is media company thinking. Media companies build brands by associating themselves with hot cultural trends. Because these trends are fickle, media companies can’t do much more than observe which way the crowd is moving and race to get in front of it.

In contrast, technology firms build strong brands by creating technology that is objectively superior to other products on the market – for everyone. Google didn’t become the dominant search engine through strategic partnerships or savvy marketing. It did it by having better search results than its competitors. And while younger users switched to Google more quickly, Google has been gradually winning older users for its search engine as well.

Tumblr’s current “cool” factor is a reflection of the fact that it’s the best product on the market for a certain style of blogging. If it can maintain that technological edge, it’s likely to continue growing. If it stagnates technologically, then its popularity will atrophy just like Flickr and del.icio.us.

Mayer says she will give founder David Karp autonomy to continue operating Tumblr as an independent entity. That’s probably wise, as it will avoid smothering the firm in Yahoo’s bureaucratic culture. If Yahoo simply provides Karp with resources and stays out of his way, the acquisition could prove a savvy investment.

But that may be easier said than done. Part of Tumblr’s charm is its minimalist design and simple user interface. Yet part of Mayer’s argument for the acquisition is that Tumblr can benefit from integration into Yahoo’s personalization, search and advertising platforms. But it’s not clear that these changes will improve the experience for Tumblr users. And more importantly the integration process will be a major distraction for the firm’s engineers and management.

The much bigger challenge would be to transform Yahoo itself into a company that takes technology seriously. In her news release announcing the merger, Mayer wrote that “Yahoo is the Internet’s original media network. Tumblr is the Internet’s fastest-growing media frenzy. Both companies are homes for brands.” Mayer’s vision of Yahoo as a media network and a “home for brands” suggests Yahoo won’t be producing great software products like Tumblr any time soon.

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