Someday, we will undoubtedly encounter one of two potential scenarios when Silicon Valley pundits and business historians get around to assessing Marissa Mayer’s legacy as the chief executive of Yahoo (NASDAQ: YHOO).
Last week, Mayer forever put her stamp on the company by announcing a $1.1 billion, mostly cash plan to acquire Tumblr.
Mayer, who came over from the juggernaut Google (NASDAQ: GOOG) to sprinkle some of its gold dust on the perpetually underachieving Yahoo, will be remembered as either a) a visionary who bravely transformed Yahoo by fearlessly taking risks or b) an egomaniac, whose penchant for pursuing growth by making long-shot acquisitions produced splashy headlines, but – like the CEOs who preceded her – failed to deliver tangible, long-lasting progress for Yahoo.
As of now, there appears to be no middle ground when it comes to measuring the accomplishments of the ambitious Mayer. Regardless of how it all turns out, give her credit for trying hard to change the culture and image of Yahoo. Before she arrived, this was a company that was best known for recently having a revolving door in the corner office and a record for failing to fulfill its potential. It sorely needed direction and discipline.
Enter Mayer. She created a stir from the get-go, not least by thumbing her nose at a Silicon Valley workplace institution, when she mandated that her charges had to come to the local Yahoo office and do their jobs. That proclamation made big news earlier this year but as it turned out, Mayer was just getting warmed up.
The Tumblr deal has made Mayer even more of a target. As Bloomberg BusinessWeek succinctly put it: Mayer “is staking the future of the largest U.S. Web portal on a six-year-old blogging startup with little revenue and a freewheeling stance on content created by users.”
The Tumblr move underscores what Mayer has brought to Yahoo. She was recruited to craft a strategy that puts the company in the same league as Google – a heady, if not impossible, goal.
An executive who was clearly in a hurry, Mayer recognized immediately that Yahoo’s best shot at competing on mobile devices and in social-networking – Wall Street’s flavors of the month -- was to grow through acquisitions.
She stuck her toe in the water by executing a few small takeovers, but with Tumblr, she is diving in, staking big money – and her reputation – on a bold bet.
The Yahoo! chief intends to tap Tumblr’s youngish user base to woo advertisers and put a scare into Google and Facebook (NASDAQ: FB) in the nearly $18 billion market for display advertisements. Can she persuade Tumblr users to embrace additional promotions?
And there’s more still on Mayer’s drawing board. As Wall Street was rushing to crunch the Tumblr numbers, All Things D last weekend said Mayer had offered from $600 million to $800 million to acquire the premium video Internet site Hulu. It was Mayer’s way of raising Yahoo’s profile in the video universe and potentially challenging Google, which owns YouTube. Other deals are reportedly also in the works.
But the Tumblr deal has captivated Silicon Valley and Wall Street alike. It is Mayer’s version of the Hail Mary pass in football, a desperate heave you make when your team is behind and time is ticking away before the end of the game.
When Brian Wieser, a media-industry analyst with the Pivotal Research Group, assessed the deal in an investment report on May 20, he reminded me of a Broadway critic. He wants very much to give the determined troupe the benefit of the doubt but knows that he has an obligation to his audience to be hardheaded, just the same.
Wieser issued what he called a “mixed” review, noting that the $1.1 billion price tag was “substantial,” and Yahoo’s acquisition “is not without risks, including a potentially flighty user base, challenges in becoming brand-safe and avoiding cannibalization of ad sales.”
Does Tumblr have the goods to justify Mayer’s decision to crash through the $1 billion threshold?
Wieser, quoting figures from media measurement service Quantcast, which assesses Tumblr, points out that the microblogging network has 52 million unique monthly users in the U.S. across both desktop and mobile instruments and a global monthly user foundation of 157 million.
Wieser points out approvingly that the unique numbers of customers have been largely constant since early last year, and the base skews young – always a plus, in a company’s eyes – “over-indexing” between 18 and 34 years old, though less affluent. Levels of usage are high, standing at 2.5 hours a month. Media reports have indicated a revenue goal of $100 million this year.
“Bridging advertiser and user interests is one of the greatest challenges to be overcome here,” Wieser writes. “However, if users can be maintained while ad inventory becomes interwoven into the site, the tonnage of inventory that Tumblr would add to Yahoo would be substantial.”
Now Mayer will have to balance the short-term pressures to monetize Tumblr with the long-term need to avoid repeating the mistakes of past acquisitions like Delicious and Flickr. Mayer has promised “not to screw it up.” Her legacy depends on it.
