Yahoo Overpays for Tumblr

3 things higher ed can learn.

May 20, 2013

If you haven't guessed by the title of this blog post, I think that Yahoo is wildly overpaying for Tumblr. $1.1 billion in cash for a business that is not only not profitable, but has no clear path profitability.   

My assumption is that the people running Yahoo are smarter than I am. They are passionate, hard working, experienced, and dedicated to protecting the interests of their shareholders, customers, and employees.   

It is the fact that Yahoo's leadership is so smart, experienced, and hard working that makes bone headed acquisitions such as Yahoo buying Tumblr for $1.1 billion so instructive for those of us involved in trying to change higher ed.   

Some lessons:

1. We Are At Risk Of Believing Our Own Stories:

In the case of Yahoo and Tumblr, it seems that CEO Marissa Mayer and the Board at Yahoo bought into a story that Tumblr's social network and mobile presence will provide Yahoo exactly the reach and platform necessary to sustain and grow its advertising business. Yahoo makes money advertising, Tumblr provides an audience and a place in which to advertise.    

Now of course Mayer and Tumblr's founder David Karp are saying that Yahoo will not screw up what makes Tumblr so great. The problem is that what makes Tumblr great is that it is a community first and an advertising platform second. Make Tumblr about the ads and the community will go away. Once they start to leave, once they start to disengage, there will be no stopping them. The web can scale dramatically - but it can also de-scale.    

In higher ed we also tell ourselves our own stories. Stories about our value to students, employers and society.  Some of these stories are true, and some of these stories are not as true as any of us would like. The key is to be always looking for competing narratives, always looking to disconfirm our hypotheses.

2. We Will Make Bad Decisions Unless We Seek Advice From Those Outside Our Industry:

One reason that Yahoo believes that it makes sense to pay $1.1 billion for Tumblr is that Facebook thought it made sense to pay $1 billion for Instagram. Since conventional metrics like revenues or business models don't justify the purchase price it is necessary to go and find other metrics - to find comparable deals. Yahoo must believe that they are different from other industries, that the normal rules of valuation don't apply in the tech / social media / user generated content / mobile world. How else could they justify this price?

In higher ed we should be concerned if our only comparative group is other colleges and universities. Do we spend enough time trying to understand other information and service industries such as media, publishing, or hospitality / tourism. When was the last time we invited someone from the military, or the energy industry, to come to campus to reflect on how the lessons they have learned might apply to higher ed?   

3. We Will Be Tempted By Shortcuts:

It is not always a bad idea to buy your way into a business. Purchasing customers, products, and employees sometimes makes more sense than building your own. Yahoo needed to find ways to play in the social media, user generated content, and mobile space.  The problem is that Yahoo needed to begin preparing for 2013, for the mobile and social media and community reality of media, way earlier than 2013. These trends have been clear for years, but Yahoo has been distracted by short term plays and bad management.

We should learn from Yahoo and be sure that we are preparing for the future of higher ed today. It is clear that higher ed in 2020 will be different from higher ed in 2013, but if we wait to prepare for these shifts to 2019 we will be too late. Long term innovation requires long-term investment. Shortcuts, like what Yahoo is trying to do with Tumblr, are almost always both expensive and ineffectual.


Be the first to know.
Get our free daily newsletter.


Back to Top