How to Buy a Social Network Without Screwing It Up

In its feeding frenzy of tech startups, Yahoo! just moved on from the appetizer menu to the main course. And it ordered the lobster.

CEO Marissa Mayer officially announced today that Yahoo! is acquiring Tumblr for $1.1 billion in cash—roughly a third of what the once-great web company has in its wallet.

The "why" is pretty simple: Yahoo! is rebranding as a technology company, upping its social media game, and trying to woo the younger generation by "looking cool again." (From the CFO’s own lips.)

How to pull it off without ruining everything will be another story—and one that Tumblr loyalists are watching intently, terrified Yahoo! will suck the cool out of their beloved haven of random, irreverent and awesome internet stuff. (The fear is warranted; Yahoo! has a history of bombing its startup acquisitions, a la Flickr and del.icio.us.)

But Yahoo! has promised not to screw this up. Mayer posted this GIF on Tumblr to announce the deal:

First it will have to learn from its mistakes. When Yahoo! bought Flickr in 2005, the photo site was a rising star. Merging with Yahoo! was a hot mess for years. “They were forced to integrate instead of innovate,”  in its great, in-depth look at the Flickr fail. I noticed the same thing firsthand when Aol bought HuffPost two years back.

Which is probably why Mayer said, "Part of our strategy here is to let Tumblr be Tumblr.” That’s nice, but doesn’t change the fact that Yahoo! will have to find a way to monetize the 6-year-old microblogging site, which prior to this deal was generating little revenue ($13 million a year, according to most analysts). So what’s the other part of the strategy?

There are parallels to draw between this deal and the Facebook-Instagram acquisition last April. In return for its $1 billion, Facebook got Instagram’s six employees, 50 million users, zero revenue, and wild popularity.

Tumblr, by comparison, has 108 million blogs (via Quancat), 184 million unique visitors a month (via comScore) and like Instagram, an active, loyal and devout user base.

In both cases, the communities freaked out when they heard they were being bought out by the man. Angry users threatened to leave Instagram in droves. They didn’t; the photo app has almost twice as many users now, and four times the staff. Which means Facebook’s plan is falling right into place. Facebook’s M.O. is to grow a solid user base before sneaking eerily targeted ads into its platform.  Instagram is still ad-free, and as of this month [Facebook said](http:// http://techcrunch.com/2013/05/05/growth-before-ads/) it has no official plan to change that. But it will. The social network has added features and updates—location data, hashtags and a new web feed—all partially designed to make room for an eventual infusion of advertising.

Google took a similarly patient route in monetizing YouTube, after buying it for $1.65 billion in in 2006. Three years after the sale, YouTube still hadn’t made a dime, but was growing like gangbusters. In the last couple years, as surely you've noticed, Google started slapping ads on popular videos. Last year YouTube brought in over 3 billion in gross revenue. Gangnam Style alone earned $8 million from ad dollars.

So will Yahoo!, too, take it slow? The company already has plans to boost revenue, possibly by putting more ads on Tumblr’s dashboard, the Wall Street Journal reports. But it will be especially tricky to sell ads on Tumblr, which is ripe with not-so-advertising-friendly content like, you know, pornography. And stuff like this.

Yahoo! will also have to risk not pissing off Tumblr’s users (any more than it already has), who are used to David Karp’s minimalist and independent way of doing things.

That's the troubling Catch-22 here—for both companies. To make any money off Tumblr's cool factor, Yahoo! will have to make Tumblr decidedly less cool.