Yahoo has been in the news lately, and about 99.9% for all the wrong reasons. Yahoo has made news for its stake in Alibaba, Marissa Mayer’s leadership (or lack thereof), activist investor Starboard Value’s proxy fight to replace the company’s board of directors, falling share price, and of course its acquisitions. Mayer came to Yahoo from Google on a mission to reinvigorate Yahoo’s talent, so acquisition was the tool to accomplish this goal. Yet, not all acquisitions are created equal, and that is the case with Yahoo’s acquisition of Tumblr in 2013, which stands on the precipice of the M&A failure chasm. An acquisition intended to spur growth and help Yahoo reach younger and mobile customers, the deal self-imploded over what is a case study of a sales integration “epic fail.”y
Sales Integration Epic Fail
In 2013, after a very quick engagement headed by Mayer, Yahoo acquired David Karp’s Tumblr for $1.1B (USD). Yahoo had high hopes of leveraging Tumblr similarly to how Google leveraged its acquisition of YouTube, according to an unnamed source:
“I think this is going to be a smart deal…There’s a huge amount of traffic Tumblr is monetizing very modestly. Assuming Yahoo manages this well and appropriately, I think there is a ton of upside, no different for Yahoo than YouTube was for Google.” 1
While Yahoo saw this acquisition as a great business deal, Tumblr users had a much different perspective. As Ben Gomes-Casseres stated in his Harvard Business Review blog on the acquisition:
“As Yahoo goes through with its acquisition of Tumblr, CEO Marissa Mayer may have a user rebellion on her hands. The early reaction from the Tumblr community is not encouraging—blogs lit up with memes of crying babies and apocalyptic rants upon the announcement of the news. The uproar was bolstered by stories critical of Yahoo’s earlier acquisitions, and fueled by rumors that Yahoo may introduce advertising to the popular blogging site.” 2
As part of the deal,Yahoo and Mayer decided to keep Tumblr and Yahoo separate, and not conduct a full integration. That the two companies would not be combined was “promised” to Tumblr employees—and Yahoo’s failure to stick to its promise has come back to haunt it now.
The high hopes for the Tumblr acquisition started to come apart last January when Yahoo and Mayer announced that Tumblr failed to meet its revenue estimates and that Yahoo was taking an initial write-down of $230M (USD). Additionally, according to its annual 10-K filing on February 28, Yahoo could write-down the entire $1.1B (USD) acquisition:
“Given the partial impairment recorded in the Tumblr reporting unit in 2015, it is reasonably possible that changes in judgments, assumptions and estimates the Company made in assessing the fair value of goodwill could cause the Company to consider some portion or all of the remaining goodwill of the Tumblr reporting unit to become impaired.” 3.
How did a promising acquisition, at least from Yahoo’s perspective, go so wrong in such a short amount of time? It unraveled after Mayer decided to integrate the two companies’ sales teams in 2015. Now Yahoo has done a 180-degree turn on that decision to get Tumblr back on track revenue-wise . However, it may be too late to right that ship. According to former Tumblr employees, the decision and implementation were rushed and failed to create synergies. 4 A year and a half after the acquisition, Tumblr was seeing good traction until the integration of the sales teams was done. The Tumblr sales team grew from about 18 people to almost 80 people, and its sales presence expanded to Europe and Asia as well. 5 But the change created confusion and animosity, eventually resulting in more than half the members of the Tumblr sales team leave the company. These following issues were potentially precursor events to this exodus:
- Lee Brown, who formerly led Tumblr’s sales team, left in February 2015, joining Buzzfeed as chief revenue officer. There have been a few temporary fill-ins for Brown’s former position, but no one has been officially named yet.
- The two teams were going after fundamentally different advertisers, and it made it difficult to work together. Tumblr mostly did native ads targeted a much younger audience than Yahoo that was using a more traditional ad strategy. 6
Critical missteps for sure by Yahoo, but what could Yahoo AND Tumblr have done differently by leveraging their M&A collective leadership capabilities? Stay tuned for part two of this blog to learn the answers as we will review the acquirer and target sales function leadership skills correlated to M&A success and how this sales integration could and should have been conducted.
Change the mindset. Change the model. Change the outcome.
Dr. J. Keith Dunbar is founder and chief executive officer of Potentious. He can be found connecting and sharing knowledge about M&A leadership on Twitter and LinkedIn.