Yahoo + Tumblr = Big Win. Facebook + Tumblr = Bigger Win
Yahoo is going
to buy Tumblr for $1 billion on Monday according to reports.In this post I will explain to you why the media is freaking out, why big companies need to make more bets like this, why Yahoo is the perfect home and why Zuckerberg should offer $2 billion.
Media... Freak Out!
Over 20 years in the industry I’ve learned that when something gets bought for $1 billion or more, people tend to freak out.
People can comprehend millions of dollars, because we all know folks who have a million or more dollars (or homes worth that). When you start talking about 100's of millions of dollars or 1,000's of millions of dollars, people get emotional and some start lashing out.
Journalists are one of the first groups to lash out. Why? Because they have no chance of making big money in their jobs, and they have to fight for $5,000 raises while their pensions are replaced with 401ks. Also, they tend to have covered startups like Tumblr from year one and they can’t reconcile how something that didn’t exists five years ago is now worth $1 billion — and that they don’t have to balls to create something.
F@#4k It, Yahoo Should Buy 10 Tumblrs
Here’s the truth: a billion dollars is nothing to a company like Yahoo or Google or Facebook or Apple or Microsoft.
If there were 10 startups like Tumblr, with 100 million-plus users and $50 million to $100 million in revenue potential a year, it would actually make sense for Google, Yahoo or Facebook to buy all 10.
At once.
Roll the dice.
Why?
Because those companies have tens to hundreds of billions of dollars in market cap and cash, and if 1 in 10 of those startups turn into YouTube, it’s worth it.
For background, Google bought YouTube for $1.65 billion in October 2006, after 20 months in business. It now has 1 billion monthly users in year eight. If YouTube were a stand-alone business that IPO'd it would now be worth AT LEAST $50 billion, but I would say north of $100 billion based on potential.
A hookup with Yahoo makes complete sense because Yahoo has massive scale in advertising and with users. Yahoo could easily grow Tumblr’s user base by 3x and revenue by 10x in two years. That means Yahoo’s footprint makes Tumblr 4x bigger in a year.
Just like Google made YouTube 50x more valuable in the six-and-a-half years since buying it.
Or Google bought Android for an estimated $50 million back in 2005. Android just announced it has 900 million devices activated — compared to Apple’s iOS device count of ~560 millions (as of Q2 '13).
Oh yeah, Yahoo almost bought Facebook for $900 million back in 2006. If it had, Yahoo would now be Google.
And Google almost bought Yelp for $550 million in 2009. Yelp is now worth about $2 billion.
You need to risk a Geocities or Bebo to get a YouTube, and if you get a YouTube you win.
Zuck Needs to Step It up
If I’m Zuckerberg, I’m waiting in a Sprinter outside of Tumblr’s office with three things:- A term sheet for $2.2 billion: $1.1billion in cash to match Yahoo’s offer and $1.1 billion in Facebook stock as the gravy.
- Kevin Systrom from Instagram.
- Sean Parker and Chamath Palihapitiya.
- Joshua Schachter and Caterina Fake.
a) Paying 2% of Facebook’s net worth for a product that teenagers love, when teenagers are starting to hate Facebook, is an awesome hedge. If it turns out that social networks are generational, it’s a super slick move to own a portfolio of social networks that share common infrastructure like advertising, hosting and user data.
b) Kevin Systrom got 2x Twitter’s offer for Instagram last year, and Zuck has left Kevin alone. He’s the perfect person to pitch for Zuck.
c) Sean Parker set up Zuck as the invincible “God King” of Facebook. Zuck controls everything because Parker showed him how. Chamath showed Zuck how to focus and scale. These two are now doing huge things in the world and can show the Tumblr founder what life is like 'after Zuck.' Which is to say, awesome.
d) Zuck should invest in Joshua and Caterina’s startups with a blank check, make them Facebook advisors for $100k each a year and then have them in the Sprinter. Have them tell David Karp exactly what it was like inside of Yahoo and how they feel about their babies being abused post-sale. How heart-breaking it was. This is totally dirty and unfair to Marissa, but it is COMPLETELY fair to Yahoo -- which has a horrible track record with founders.
If Zuckerberg pulls this off, he is hands down the greatest M&A executive on the planet: bold, cunning and founder-focused.
Zuck has nothing to lose. If Tumblr is a complete ‘Bebo’ (aka what we call a failure in the business), it has zero impact on him.
Marissa? Not so much. Everyone will second-guess her and base her term as Yahoo CEO on this acquisition. That means she is going to be all up in David Karp’s business -- she can’t afford not to be.
Q: Why Didn’t Anyone Complain about Yammer at $1 billion?
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Yammer was a SaaS enterprise service with subscription revenue. Subscription revenue from enterprises takes decades to lose typically. Advertising revenue in a social network? That tends to vaporize overnight.
Tumblr, or any ad-driven business, carries 10x the rate of something a big company pays for on a yearly basis.
Q: Shouldn’t Karp Pull a Houston?
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Drew Houston and Dropbox famously turned down $1B (or more) from Steve Jobs. It was valued at $4B when it raised $250M in 2011.
Should Karp do the same?
I don’t think so. Blogging platforms and social networks are risky businesses. Sure, WordPress.com has chugged along building more and more value, but MoveableType, Pownce, Friendster and countless others became roadkill.
$1.1B is a massive return and while there might be more upside, I don’t see it making up for the massive risk.
Sell now.
Conclusion: 80% Yahoo gets the deal done, but don’t count out Zuck. Well done Karp and investors.
[ Quick plug: next month I’m hosting the second annual LAUNCH Education & Kids at Microsoft. 300 teachers, educators, pundits, investors and founders will meet to discuss the latest technology in the space. We’ll have dinners, drinks and a fun time, too!
We’re going to sell out this week (there are 20 slots left). Some updates:
Legendary entrepreneur and investor Mitch Kapor will sit down for a fireside chat on June 26, and Daphne Koller, Coursera co-founder and Stanford professor, on June 27.
Kapor Capital's education investments include Alltuition (now Brilliant - match & science challenges for world's brightest kids), MindSnacks (mobile games for learning) and Motion Math (math games for mobile).
Coursera, which aims to make the best education accessible online to everyone for free, has more than 3.5M students, 370 courses and 69 institutional partners. Daphne pioneered many ideas that underlie the Coursera user experience.
We are in the process of choosing 20 companies to launch new products/launch on stage. It's not too late to apply if you have something new or want to launch your edtech startup on our stage ]
all the best,
@jason
( yeah, I got the twitter handle @jason )
[ sign up for jason’s email list at http://jasonnation.com/ ]
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