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Yahoo 'won't screw Tumblr'? Then Tumblr will screw its balance sheet

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Comment Famously, Yahoo! has promised during its $1.1bn buy of hipster blog site Tumblr not to "screw it up".

If I was a Yahoo! shareholder, I should hope not - given the head-spinning number of dollars. But not screwing up is like Google’s promise to “not do Evil” – impossible to comply with, and something people throw back at you.

In the case of Yahoo!, which paid about a fifth of the money it made in 2012 for a social network with no obvious revenue-generation model, the pressure to meddle will be immense and unavoidable from the very start.

And Yahoo! has previous form here.

Remember Flickr and Delicious?

Exactly. Nobody remembers or cares about the latter and when it comes to the former, that pan went off the boil years back.

With Flickr and Delicious, Yahoo! followed the prescribed M&A playbook of folding the new asset into its existing corporate structure and reporting lines.

That’s a formula for disaster if you want to reap the benefits of a web company: the smaller, faster moving company gets sucked into the slower moving entity and becomes subjected to bigger departmental politics and changing corporate strategies.

Invariably, you lose two groups of people - the assets that made the new company special and desirable in the first place. You lose the employees whose engineering or ideas attracted the second important group - the users. This second group drift away to new rivals as the service invariably degrades and is no longer perceived as good as it used to be. Yahoo! isn’t unique: News International did the same thing with MySpace as Facebook ascended, and now even Rupert Murdoch admits it, calling his service “CRAPPY.”

Yahoo! promises it has learned its lessons, and that Tumblr will be kept at arms length. Tumblr will be run independently and operated as a separate business, with chief executive David Karp in charge and the product, service and brand spared the purple branding iron.

In this, Yahoo! is following the new rule established by Microsoft when it bought Skype for $8.5bn in 2011. Microsoft’s loss-making P2P VoIP telco is run as a separate entity and has retained its own product and technology development heads, its chief executive Tony Parsons – who reports to CEO Steve Ballmer - and it's kept the Skype brand.

Microsoft learned the hard way. It’s done plenty of acquisitions, but its biggest failure was also its biggest purchase - until Skype: aQuantive for $6.3bn in 2007. aQuantive was to turn Microsoft into an ads publishing and creative shop that would serve ads across Xbox Live, Windows Live, Office Live and MSN, and turn into a "digital advertising opportunity for all".

Staff left, aQuantive was cut up and sold off, and five years later Microsoft wrote off most of the billions it had spent, saying the acquisition hadn’t accelerated growth “to the degree anticipated".

Good intentions not to meddle are one thing, but can Yahoo! be trusted and how long will its promise last?

There’s plenty of reason to leave Tumblr alone and very little reason to start meddling. Like Skype, Tumblr is an extremely simple proposition that does one simple thing. Skype is a simple VoIP and vidcall service used by millions and Tumblr is a photo, text and media posting and sharing service also used by millions. Their biggest asset is not product lines, but the oldest asset in the book – end-users. In the case of Tumblr, it's 300 million unique users and a claimed 50 million blog posts per day.

Tumblr, like Skype, doesn’t have highly diversified product lines, manufacturing or channel operations around the globe that need to be rationalized to suit a new owners’ hub-and-spoke operations or put on single price lists and go-to-market plans. These are not complex beasts like StorageTek (bought by Sun Microsystems) or – even – Sun itself, bought by Oracle.

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