UPDATED: Yahoo buys Tumblr for $1.1B in bid for social media relevance

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Yahoo has completed an agreement to acquire social networking platform Tumblr for $1.1 billion in cash.

Yahoo CEO Marissa Mayer confirmed the deal in a Tumblr post published Monday morning but did not disclose financial details. Sources previously told The Wall Street Journal that both the Yahoo and Tumblr boards of directors approved the acquisition this weekend, with AllThingsD adding Tumblr CEO David Karp will remain at Yahoo for at least four years and will retain significant control over the service, which enables users to post multimedia and other digital content as short-form blog entries.

Tumblr promises to give Yahoo a significant foothold in social networking, a segment where the company has struggled to gain relevance. The Tumblr network spans more than 96 million blogs in all and generates more than 16 billion page views per month, buoyed by apps for Apple's (NASDAQ:AAPL) iOS, Google's (NASDAQ:GOOG) Android and Microsoft's (NASDAQ:MSFT) Windows Phone 8 that support on-the-go sharing of photos, GIFs, video clips, quotes and messages. In a recent interview with Bloomberg, Tumblr Head of Sales Lee Brown said that the number of users accessing Tumblr's mobile apps has quadrupled over the past six months, coming close to its Web traffic totals.

Last month, Tumblr launched mobile advertising efforts across its iOS and Android apps: Users see up to four ads each day, distinguished from other posts by an animated dollar sign icon. Brown has said that the average ad purchase on Tumblr's network is now "just under six figures," and with the expansion to smartphones, "We expect that the monetization will lead us to profitability this year." AllThingsD notes Yahoo will look to accelerate those monetization aspirations by integrating its own advertising infrastructure into Tumblr's efforts.

Acquiring Tumblr could also overhaul Yahoo's public image, giving the brand newfound cachet among the coveted 18-to-24-year-old demographic. AllThingsD reports Mayer considers Tumblr "the stake in the ground of what her strategy is going forward for Yahoo" after conducting extensive research indicating the site is precisely the kind of forward-thinking property Yahoo needs to make its brand "cool" and relevant to consumers.

The Yahoo/Tumblr deal also poses significant risks, however. Yahoo acquired Flickr in 2005 for a reported $35 million, but the photo-sharing site has since fallen far behind newer rivals like Facebook's (NASDAQ:FB) Instagram. Many Tumblr sites contain adult content, which could turn off advertisers--moreover, an overly aggressive advertising push could turn off new and existing users.

In an op-ed written for CNNMoney, former Google executive John Saroff estimated Tumblr could generate $108 million or more a year based on current online advertising rates, but he said the company was "correct" to resist stuffing its site with advertising to avoid alienating its core audience. Saroff also said that Tumblr would likely have to secure permission from bloggers like him before it begins selling ad space and sharing revenues, drawing parallels with Google's own YouTube video site, which divides revenues with content creators. "It requires product vision, engineering talent, business development work and account management skills that took Google/YouTube years to grow with many fits and starts," Saroff wrote.

Some Tumblr users are already pushing back against the Yahoo deal. Business Insider reports that searching Tumblr for keyword "Yahoo" reveals a number of posts protesting the acquisition, and one user has already launched an online petition to halt the deal.

Mayer tried to assuage those concerns. "We promise not to screw it up. Tumblr is incredibly special and has a great thing going," she writes. "The product roadmap, their team, their wit and irreverence will all remain the same as will their mission to empower creators to make their best work and get it in front of the audience they deserve. Yahoo will help Tumblr get even better, faster."

For more:
- read this AllThingsD article
- read this Wall Street Journal article
- read this Business Insider article

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Updated May 20 to include Marissa Mayer's comments

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