Internet Acquisition Malaise: Bulking Up On Eyeballs But Going Easy on Compelling Revenue Models

On May 24, 2013, the Online edition of the Wall Street Journal published an article by Jessica E. Lessin, Why Tumblr Won’t Move Yahoo’s Needle (http://online NULL.wsj NULL.com/article/SB10001424127887323975004578503104041662958 NULL.html?mod=WSJ_MIDDLENexttoWhatsNewsSecond). As Ms. Lessin points out “Tumblr isn’t going to earn Yahoo orders of magnitude more revenue—or even a new revenue stream.” (quoted from Ms. Lessin’s article, a link to which has been provided here).

We think Ms. Lessin’s comments make for extreme understatement. She notes the disparity between a purchase price of $1.1 billion and Tumblr revenue for 2012 at an approximate $13 million, but claims “Yahoo’s sales team will likely be able juice that number” (ibid). We don’t think so. We don’t see the rationale for the purchase. Here’s why:

Tumblr is not a new Internet property. There isn’t anything technically earth shaking about it. The editorial and visual content maybe appealing to an affluent audience, but there are some other similar enclaves online. So why spend so much to acquire Tumblr? Ms. Lessin postulates it all came down to “users” (we put this in quotes. We’re dubious on the claim. Are all these visits from humans, or are some large proportion generated by computers. We’d rather revert to the legacy phraseology — “pageviews”). With Tumblr rolled in, Yahoo gains ” . . . some 300 million monthly unique users, it claims” (ibid). We respectfully reply “big deal.” Facebook has even more “unique users” but we don’t see where they have an effective method of monetizing this traffic.

But what’s worse is the lack of pushback from the Yahoo board of directors on this purchase. The acquiescence of the board to this acquisition is disturbing. Perhaps they know something more than they have publicly disclosed. We certainly hope so.

We had first hand experience in 1999 when the Internet business bubble first burst. In Yahoo’s acquisition, Facebook’s grossly overpriced IPO, the poor performance of Zynga, Pandora and Groupon, we see a repeat.

We’re much more optimistic about online business models built on SaaS Cloud offers for businesses and enterprise class organizations. If you’re thinking about where you’d like to go with an online business idea, please don’t hesitate to contact us. We’d be happy to share more of our thoughts on this topic with you.

Ira Michael Blonder (https://plus NULL.google NULL.com/108970003169613491972/posts?tab=XX?rel=author)

© IMB Enterprises, Inc. & Ira Michael Blonder, 2013 All Rights Reserved

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