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Originally published May 19, 2013 at 9:23 PM | Page modified May 20, 2013 at 6:50 AM

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Yahoo readies $1.1 billion deal for Tumblr

Yahoo’s board Sunday approved the cash purchase of the blogging service, people with direct knowledge of the deal said. The announcement could come Monday.

The New York Times

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The board of faded Web pioneer Yahoo agreed Sunday to buy the popular blogging service Tumblr for about $1.1 billion in cash, people with direct knowledge of the matter said, a signal of how the company plans to reposition itself as the technology industry makes a headlong rush into social media.

The deal, which could be announced as soon as Monday, would be the largest acquisition of a social-networking company in years, surpassing Facebook’s $1 billion purchase of Instagram last year.

For Yahoo and its chief executive, Marissa Mayer, buying Tumblr would be a bold move as Mayer tries to breathe new life into the company.

It is meant to give Yahoo more appeal to young people, and to make up for years of missing out on the revolutions in social networking and mobile devices. Tumblr has more than 108 million blogs, with many highly active users.

Yet even with all those users, a basic question about Tumblr and other social-media sites remains open: Can they make money?

Founded six years ago, the New York company has attracted a loyal following and raised millions from big-name investors. Still, it has not proved it can be profitable, nor that it can succeed on mobile devices, the new gateway to the Internet.

A Yahoo spokeswoman declined to comment. A representative for Tumblr did not respond to requests for comment.

If the deal goes through, Mayer will face the challenge of successfully managing the takeover, given Yahoo’s notorious reputation for paying big money for startups and then letting the prizes wither.

Because of this, Mayer will face pressure to keep Tumblr’s staff, led by its founder, 26-year-old David Karp, who dropped out of high school at 15. It is unclear whether all of Tumblr’s 175 employees will move over to Yahoo.

At the same time, analysts and investors are likely to question whether buying a site that has struggled to generate revenue makes sense.

“This is not an inexpensive acquisition, but they’re willing to pay to get back some of what they’ve lost,” said Colin Gillis, an analyst at BGC Partners. “They want to be hip.”

Tumblr brings something that Mayer has sought for some time: a full-fledged social network with a loyal following.

The startup reaches 44 million people in the U.S. and 134 million around the world, according to Quantcast.

But in some ways, Yahoo is not pursuing users — it already claims 700 million, one of the biggest user bases on the Web — but products and services that would again make it a central destination.

Once the biggest U.S. seller of display ads, Yahoo has lost market share to the likes of Google and Facebook. Its share of digital ad revenue has tumbled to 8.4 percent last year, from 15.5 percent in 2009, even as total ad spending grew, according to eMarketer. Google now has about 41 percent.

The company also missed the shift from the Web to smartphones and tablets. It waited a significantly long time to roll out apps for its most popular services.

Tumblr’s trove of users and pages could provide fertile new ground for Yahoo’s ad operations, with what industry experts say is a bounty of unsold ad inventory.

But Tumblr burned through an estimated $25 million in cash last year, and struggled to raise additional money at an acceptable valuation, according to people briefed on the matter who were not authorized to speak publicly about it.

That prompted Karp to begin deal discussions with a number of companies, including Facebook, Microsoft and Google, though nothing came of those talks.

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