First Tumblr, Now Hulu, Oh My! What's Driving Yahoo's Startup Appetite
Under chief executive Marissa Mayer, internet giant Yahoo has been on a startup-buying spree, and it shows no signs of stopping. News broke over the weekend that Yahoo has offered to buy streaming video site Hulu for between $600 million and $800 million, depending on the overall terms of the deal.
Hulu is currently the focus of a bidding war between Time Warner, Directv and other big players. Yahoo turned to Hulu after its plan to buy a majority stake in French video-sharing site Dailymotion was blocked by the French government earlier this month.
Since Mayer took the helm last July, Yahoo has acquired 12 companies. Among them are news aggregation startup Summly, social-media platform Snip.it, video chat startup OnTheAir and microblogging platform Tumblr, which boasts over 300 million members. Since closing the Tumblr deal for $1.1 billion in cash last week, Yahoo has already bought another company: gaming software outfit PlayerScale. The four-year-old startup, which Yahoo bought for an undisclosed sum, creates tools for game developers, including analytics tools that can track player behavior.
"Yahoo is pursuing a plan of diversifying its media business away from the pure Yahoo.com brand," says Andrew Frank, who covers Yahoo as a media analyst for research firm Gartner. That means expanding beyond longstanding services such as search, news and email and getting into new areas such as social media and video, which could also help Yahoo branch out from its mostly advertising-based revenue. Such a plan, Frank says, is standard for maturing media companies that want to reduce risk and make their revenue more predictable.
The desire to attract young users has also played a role, especially in the Tumblr acquisition, says Frank. And while Tumblr itself may not be a good platform for selling ads, due to the ad-free layout of its blogs, Frank believes its user data will prove to be a valuable resource to target advertising on other Yahoo properties. "If you can determine people's interests based on their Tumblr experiences, then perhaps you can have better success targeting them with interest-based ads in other contexts," Frank says.
If purchased, Hulu would further the goal of diversifying Yahoo's revenue, which Frank says has been almost exclusively dependent on advertising. Users of Hulu's premium subscription service pay a monthly rate to watch movies and full episodes of television shows online. And the acquisition of a video service may help Yahoo compete with YouTube, which has proved to be an immensely lucrative property for Google.
So what comes next? Frank was loath to speculate, but he said mobile needs to be a focus for Yahoo. He also mentioned ecommerce and social commerce as potential spaces for the company to enter. "There's a lot of interesting areas that Yahoo could go into," he says. "I don't think there's any shortage of opportunities."
Brian Patrick Eha is a freelance journalist and former assistant editor at Entrepreneur.com. He is writing a book about the global phenomenon of Bitcoin for Portfolio, an imprint of Penguin Random House. It will be published in 2015.