800px-David_Karp_EBE09

After Yahoo acquired Tumblr for a reported $1.1 billion Yahoo CEO Marissa Mayer took to – what else? – Tumblr to announce the deal:

“We promise not to screw it up.  Tumblr is incredibly special and has a great thing going.  We will operate Tumblr independently.  David Karp will remain CEO.  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.”

Tumblr’s founder must have popped the same happy pills, because on – what else? – Tumblr he used words like “elated,” “awesome,” “unbelievable” “dream,” “ultimate” and “fuck yeah” to describe his feelings. Karp also felt the need to “allay” concerns:

“We’re not turning purple. Our headquarters isn’t moving. Our team isn’t changing. Our roadmap isn’t changing. And our mission – to empower creators to make their best work and get it in front of the audience they deserve – certainly isn’t changing.”

If history is any guide, let’s hope that Karp got that in writing. When Yahoo acquired Flickr for a relatively paltry $30 million in 2005, founders Stewart Butterfield and Caterina Fake also took to the company blog. Like Karp, they couldn’t contain their glee – “Woohoo!” and said they would be “working with a bunch of people that Totally Get Flickr and want to preserve the community and the flavor of what is here. We’re going to grow and change, but we’re in it for the long haul, with the same management and same team,” which “in spite of our wiseassery, tomfoolery and tendency to hoot spontaneously – is crucial for preserving the Flickrness that is Flickr.”

How’d that work out for them? For the first couple of years, things were fine. Fake told Gizmodo that “Yahoo was a good fit initially” and “in the subsequent two years after the acquisition, Flickr blossomed.” Then Yahoo’s Corporate Development department began to bleed Flickr dry, denying it resources because it didn’t generate sufficient revenue. “The money goes to the cash cows, not the cash calf,” as one anonymous Yahoo employee told Gizmodo. Instead of constantly innovating, Flickr management found itself in meetings defending the product.

Other acquisitions, whether for billions or tens of millions, have ended similarly. In May 1998 Yahoo acquired GeoCities, a site that allowed users to set up their own websites and was the third-most trafficked site on the Internet, for $3.57 billion in stock. It instituted changes to bring it more closely aligned with Yahoo’s ethos and users left in droves. Within a decade GeoCities was gone, and today it limps on in Japan only.

Yahoo also bought Overture, which pioneered the sale of advertising linked to web searches, and a valuable patent it received in 2001, which it accused Google of violating. The case settled in 2004, with Yahoo receiving approximately $365 million in Google shares. While Yahoo struggled to absorb Overture into its business Google did just fine, becoming one of the most valuable companies in the world while its once-rival shriveled into what it is today.

And who can forget its biggest acquisition, the $5.7 billion that Yahoo paid in stock to Mark Cuban and company for Broadcast.com in 1999? At the time Broadcast.com might have been most famous for making a mess of live streaming a Victoria’s Secret fashion show. After it was absorbed the company was renamed Yahoo Broadcast Solutions, then spun off into Yahoo Launchcast, which still exists, I guess, although not many people have heard of it.

Despite Mayer’s promises (or protestations?) David Karp would do well to keep these lessons in mind as he sallies forth.

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    1. Jason Calacanis
      Past Investor
    2. Dave Morin
      Past Investor
    3. Gary Vaynerchuk
      Past Investor