What has my attention about Yahoo!, though, isn’t the purchase of Tumblr or the price paid for it (though that will play a part here in a moment). It’s not even Mayer’s comments, which hint that the company has little problem with adult content on Tumblr blogs. Instead, I’m wondering if all of the attention that’s being placed on the Tumblr purchase isn’t causing some people to overlook a larger strategy that’s at work.
Content is king
According to a recent report from All Things D, Yahoo! has entered the bidding war to acquire the Hulu video streaming service. Hulu has been looking for a new owner since earlier this year, due largely to disagreements between some of its current owners on the direction the future of the company should take. Yahoo! Inc. (NASDAQ:YHOO) would be competing against bids from companies such as DIRECTV (NASDAQ:DTV), Time Warner Cable Inc (NYSE:TWC), Guggenheim Digital, and possibly even Amazon.com, Inc. (NASDAQ:AMZN).
It makes sense that Yahoo! would attempt to purchase Hulu, especially after French officials prevented the company from buying a majority stake in the competing streaming service Dailymotion. Purchasing a well-known video streaming service would give Yahoo! Inc. (NASDAQ:YHOO) access to both digital content and an established platform to distribute it, which comes with a robust user base already attached. In Hulu’s case, it also comes with both advertising and subscription revenue as well.
Bring it home and leave it alone
Some analysts and tech watchers are concerned about new acquisitions by Yahoo! because of how poorly some of the company’s past acquisitions have worked out. In the past, part of Yahoo!’s strategy seemed to be buying companies and trying to force them into the “Yahoo!” mold. Purchased services would get a Yahoo! Inc. (NASDAQ:YHOO)-conforming facelift, new pricing structures, and declining levels of support until the service was either mothballed or simply fell into obscurity. It’s important to remember that it was the Yahoo! of old that did that, though, and now we’re dealing with Mayer’s Yahoo!.
The issue of adult content on Tumblr is a potential example of Yahoo!’s new strategy when it comes to acquisitions. Instead of buying up popular services and forcing them into a Y!-shaped mold, the company seems content to make the purchases and then leave the underlying structure largely untouched. Mayer herself made reference to the differences between Yahoo! and Tumblr and how “edgy” the blogging platform could be, and in a post on her own Tumblr account promised not to “screw it up.” Tumblr’s CEO is remaining in place, allowing the platform to continue operating independently under the Yahoo! umbrella.
A similar strategy seems to be in place for PlayerScale, another recent Yahoo! acquisition that was largely overshadowed by the Tumblr purchase. A cross-platform gaming company that offers connection opportunities for social and mobile gamers as well as tools for game developers, the company’s CEO posted a message to the service’s 150 million users to let them know that the service they know and love wasn’t going anywhere and would only get better from here.
Monetization is key
Yahoo!’s recent (and potential future) acquisitions are significantly different than the company’s core business, and with good reason. Right now Yahoo! Inc. (NASDAQ:YHOO) needs monetization, and there’s only so much that can be done with a business that many people think is a decade or more past its prime. The company needs to be able to compete with Google Inc (NASDAQ:GOOG) for online advertising revenue, and that’s just not going to happen without some fresh platforms to expand onto.
Right now, Google’s advertising network is at the top of its game, due largely to the popularity of Google Inc (NASDAQ:GOOG)’s search engine and its YouTube streaming video service. While Google Inc (NASDAQ:GOOG) could eventually tumble and might even be in the same position as Yahoo! one day, it’s not likely to happen anytime soon. YouTube isn’t going to simply stop being the go-to destination for streaming video on a whim, and while Microsoft Corporation (NASDAQ:MSFT)’s Bing search engine is aggressively trying to take out some of Google’s market share I don’t think that anyone is holding their breath in regard to Google search falling from the top spot. Yahoo! Inc. (NASDAQ:YHOO) can’t compete by following its traditional business, so if it wants to regain its relevance then it has no choice but to change the game.
Tumblr, PlayerScale, and Hulu (if Yahoo! gets it) will all open up new advertising opportunities for the company and additional revenue inroads as well from premium services and PlayerScale’s software-as-a-service licensing model. Yahoo! is spending a lot of money right now, but at the very least the company is being smart by stepping outside of its comfort zone when looking for new acquisitions.
Into the brave new world
It’s a bit early to tell whether Yahoo!’s acquisition strategy will be just what the company needs or a nail in the company’s coffin. The company had approximately $1.2 billion to spend before the Tumblr deal, but the platform’s $1.1 billion cash price tag left little of that available for other acquisitions. Given that one of Hulu’s founders are rumored to have offered at least $500 million for the company, Yahoo! might be hard pressed to continue its expansion in the direction that the company wants to go.
Even if Yahoo! does manage to get Hulu, it will then be tasked with overcoming competition from Netflix, Inc. (NASDAQ:NFLX) which has recently introduced new strategies of its own. Netflix, Inc. (NASDAQ:NFLX) is creating original programming that thus far has received largely positive reviews, and it has also inked high-profile deals with companies such as The Walt Disney Company (NYSE:DIS) and DreamWorks to bolster its content lineup in the coming years. With an increasing number of streaming options all vying for a chance to go head-to-head with Netflix, Yahoo!’s Hulu would have to overcome its current crisis of direction in pretty short order if it hoped to have a shot.
On the plus side, Hulu does have access to content that Netflix, Inc. (NASDAQ:NFLX) doesn’t (though this may be at least in part due to the partial ownership of the service by NBC Universal). If Yahoo! Inc. (NASDAQ:YHOO) does acquire Hulu, it could potentially leverage this content to its advantage and give the service a clear direction moving forward. It would be a strong asset for the company, and along with Tumblr and PlayScale could even be the beginning of a strong new Yahoo! that’s willing to face its competition head on.
The article Is Yahoo! in Acquisition Mode? originally appeared on Fool.com and is written by John Casteele.
John Casteele has no position in any stocks mentioned. The Motley Fool recommends Google and Netflix. The Motley Fool owns shares of Google and Netflix. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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