AllThingsD is reporting that Yahoo!'s (NASDAQ:YHOO) board of directors has approved an all-cash deal to buy the social blogging site Tumblr for $1.1 billion. At first glance, purchasing a company for more than a billion dollars with only $13 million in annual revenue seems pretty stupid. However, Tumblr gives Yahoo! access to a young demographic and invaluable experience in developing a compelling mobile experience, both of which are areas where Yahoo! is looking to improve.
Since Marissa Mayer's arrival, Yahoo! has been working to reinvent its image to be more relevant in the age of mobile computing and social media. The company has undergone a massive front page redesign, which it's begun monetizing in a similar manner to how Facebook monetizes its News Feed with Sponsored Stories. Despite borrowing this page out of Facebook's playbook, which combats the threat of mobile cannibalization, Yahoo! has a different problem.
Mobile on the brain
According to comScore, Tumblr reached 37 million unique monthly U.S. visitors in March, of which 25% were mobile-only users. In the same release, comScore found Facebook to have the same level of mobile-only engagement as Tumblr had in the U.S. Both instances compared favorably to Yahoo!, which had 16% of its U.S. users engaging only on a mobile device. In other words, compared to its peers, Yahoo! is lagging behind in mobile engagement, which is arguably a bit problematic in the context of continued worldwide smartphone and tablet proliferation.
In fact, it's believed that Yahoo! only makes about $125 million a year in revenue from its 200 million mobile users, the majority of which comes from search. This should make it pretty obvious that Yahoo! has a very small mobile monetization base outside of its preinstalled Apple iOS user base.
One more thing...
Yahoo!'s mobile advertising strategy is far more complicated than other mobile companies. It doesn't have a huge social network to leverage, nor does it have a Google Android-like mobile operating system at its disposal. What Yahoo! does have are multiple Internet properties that require unique advertising strategies. It's probably not in Yahoo!'s best interest for Flickr and Yahoo! Finance to have the same marketing strategy.
Above all else, before Yahoo! can monetize mobile to the moon, it has to attract more users by improving the mobile experience. Perhaps Tumblr knows a thing or two about this.
Fool contributor Steve Heller owns shares of Apple and Google. The Motley Fool recommends Apple, Facebook, and Google. The Motley Fool owns shares of Apple, Facebook, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.