The moment that Yahoo’s board agreed to buy the popular blogging service Tumblr for approximately $1.1 billion, the media shifted into overdrive, asking if Yahoo’s high-stakes gamble makes sense, what the deal means for Yahoo CEO Marissa Mayer, and whether Tumblr can make Yahoo “cool” once again.
Venture capitalists, meanwhile, have probably been pondering something else – specifically, how the deal impacts the value of their stakes in other social networks like Pinterest, which is now among the only still-private platforms of major scale, with roughly 50 million registered users to Tumblr’s 110 million registered users.
The early consensus appears to be that for those investors, Yahoo’s tie-up with Tumblr is good news, indeed.
“I think the acquisition positively affects everyone in the [visual social media] category,” says Paul Kedrosky, a venture investor and entrepreneur. “Everyone wants dance partners: Google, Yahoo, and, to a lesser extent, AOL and Microsoft. Now there are fewer from which to choose.”
The question is who wants what and for what price? Though Pinterest, founded in 2010, is three years younger than Tumblr, it would undoubtedly demand a higher price. Much of the company’s roughly $340 million in financing to date came through a $200 million round in February that valued the company at $2.5 billion.
Pinterest is also far broader than Tumblr in terms of reach in the United States. In its most recent Internet & American Life survey, for example, Pew Research broke down the landscape of social media according to users of Twitter, Facebook, Instagram, Tumblr and Pinterest. That research found that in the month of December, 67 percent of Internet users visited Facebook, while 16 percent used Twitter, 15 percent used Pinterest, 13 percent used Instagram, and just 6 percent used Tumblr.
Similar research compiled by Nielsen underscored Pinterest’s position near the top of the still-private social networking heap. In 2012, while Tumblr grew 55 percent year-over-year in terms of unique PC visitors, Pinterest grew by 1,047 percent. While Tumblr’s mobile Web audience grew by 162 percent over the same period, Pinterest’s grew by 4,225 percent.
Rick Heitzmann of FirstMark Capital, which has participated in each of Pinterest’s four fundraising rounds, says Pinterest is in the earliest stages of realizing its potential and that it plans to remain independent. “I don’t think the company is necessarily concerned about who buys what,” he says.
Still, Heitzmann acknowledges that acquirers, including media companies, are “looking to get more mobile, more social, more image driven and more driven by short-form content,” and that they’re particularly interested in “peer media networks, where the creators, curators and publishers are all the same people, which can drive phenomenal economics.”
Heitzmann also notes that there are a limited number of platforms that enjoy the kind of network effects that excite companies in search of growth. There are “only so many beers in the fridge,” he says. “Microsoft took one with [the enterprise-focused social network] Yammer. Facebook took one with Instagram; Yahoo has taken Tumblr.”
Assuming that Twitter goes public as expected, that limits the number of game-changing companies left to snap up. Still, any real supply-demand imbalance could change quickly, says Brian Wieser, a senior research analyst with Pivotal Research Group in New York, who observes that not only are smaller social players like Path growing quickly but that “there is no shortage of social networks that are coming online.”
Wieser points to Facebook, which has reportedly been in talks to acquire Waze – an Israeli navigation app with a social media dimension – for between $800 million and $1 billion.
Waze is six years old, but its popularity has soared particularly over the last two years, making it an attractive acquisition target somewhat recently. That sudden rise, says Wieser, illustrates that the “world is not static.”
Indeed, though Wieser thinks Yahoo’s Tumblr acquisition “validates that niche social networks can sell for ten figures,” he suggests that potential acquirers continue to weigh their options carefully.
“VCs try to engender as much fear as they can among prospective acquirers, to bring as much money as they can to the table,” says Wieser. “Sometimes it works, too. But it’s still the case that very few companies are woven into the Web in the way that Facebook is.”
Image credit: Yahoo Chief Executive Marissa Mayer speaks about Yahoo’s acquisition of Tumblr at a news conference in New York on May 20. Photo by Adrees Latif, Reuters