Yahoo bets on other people’s money

WordPress founder Matt Mullenweg noted in a blog post yesterday that Tumblr users had sent WordPress 72,000 posts in a single hour compared to the normal Sunday flow of 400-500 per hour, following reports that Yahoo had agreed to acquire Tumblr for $1.1 billion in cash, a sign that at least some Tumblr users were not happy about being absorbed.

As Kara Swisher pointed out this morning, however, the defections were not as bad as that sounded (something Mullenweg himself noted in an update to his post). Tumblr normally gets about 75 million new posts on an average day, she noted, so 72,000 is a rounding error. Even if a substantial number of Tumblr users do bolt in protest over the acquisition, in fact, it’s unlikely to matter beyond a news cycle or two, because Yahoo isn’t really buying Tumblr’s current user base. It’s buying it potential user base.

The model here is Google’s $1.65 billion acquisition of YouTube, which Yahoo CEO Marissa Mayer name-checked on her call with analysts this morning and with which she is intimately familiar. That deal happened in 2006, and it’s only now that YouTube’s real upside for Google is coming into view. And that view has improved not because Google has — at long last — figured out how to monetize all that squirrely user-generated video (since Google doesn’t break out YouTube results we don’t really know). It’s improved because, as was apparent at this month’s NewFronts presentations, commercially oriented content creators have begun seriously to embrace YouTube’s open video publishing platform for their own purposes. In the process, they’re figuring out how to add real, monetizable value to YouTube’s platform.

Tumblr is an open, social web publishing platform, something Yahoo currently does not have. Right now, Yahoo spends a lot of its own money to create and aggregate professional content and then sells ads against the audience it attracts at ever-shrinking CPMs. Getting other people to add value to your platform at their expense is a much better business model.

Mullenweg, by the way, wasn’t simply being snarky in his post yesterday.  “I think we’re at the cusp of understanding the ultimate value of web publishing platforms, particularly ones that work cross-domain,” he wrote. “[W]hile Yahoo’s all-cash deal by some metrics, like revenue, is very generous, I think it’s a tenth of the value that will be created in these platforms over the coming years.”

Mullenweg knows better then anyone the potential for having commercially oriented, professional content creators embrace your open publishing platform. The web site you’re reading runs on WordPress’s platform.

Yahoo needs an open platform to build its future on. Whether Tumblr will turn out to be the right platform, and whether its long-term potential is worth $1.1 billion now are obviously important questions. But I don’t think they’re what drove the deal.

Disclosure: Automattic, the maker of, is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, GigaOM. Om Malik, the founder of GigaOM, is also a venture partner at True.