There is a third option, of course: that they have a stupid plan.
- Probability that social media users are fickle and Tumblr is on a death march where no plan could fix the business: 20%
- Probability MM has a good plan, given that Tumblr's employees and investors didn't have a plan to turn it into a real business: 30%
- Probability that Yahoo can execute the plan, given they have a good one: 50%
Thus P(This ends badly for Yahoo) = 1- .8 * .3 * .5 => 88%
In other words, probability is more or less irrelevant, because if you fail it means a small loss which does not risk the company's future, on the other hand, if you don't acquire, and the small business succeeds big time, then that is a big loss, and may eventually kill you.
I don't see from your argument that probability is a bad tool in analyzing this situation.
Tumblr is the new Yahoo.
What has been Yahoo up until now will begin to play a secondary and support role to Tumblr. So Flickr becomes the preferred photo sharing service for Tumblr.
Unlike the traditional acquisition where the acquired company disappears, this is the case where the acquiring company will disappear.
Yahoo's ability to stay alive as a large profitable business for another 10 years is dependent upon this transformation.
It's only through this lens that any kind of financial analysis makes sense. Any traditional, or sensible financial analysis will come the logical conclusion that this is an utterly foolish move.
But if you're Google in 2002, Pay Per Click Ads is the company bet -- and today's $300B Google is the result.
Meyer is making the equivalent of Google's PPC bet -- however, the goals are not massive profits as Google's were, but Meyer's goal is to return Yahoo to a role of prominence and profitability as a consumer property.
(that being said, my bet is that this turns ends badly for Yahoo and especially the shareholders).
If you have a brand problem you go younger, later on these people are a massive force if you do it right. It could be argued that Yahoo! is really a ladies platform and that is also what brought Facebook to critical mass (in fact top gamers in the casual space are middle-aged women, they also consume lots of content like Yahoo broadcasts). My wife loves Yahoo. She is buying future.
And yes, Dave here is right, don't think for one second that controlling stake in a company means it won't change, not alot soon, and maybe carefully. But, she has a grasp on the future with this buy. Mayer is the same individual that oversaw product during Blogger, YouTube, etc at Google. Meanwhile at the old Yahoo, Flickr and Delicious were not used correctly.
The only thing I didn't like about Mayer's moves is still the remote worker changes she enforced, I think that is a huge limiting factor for Yahoo talent. Will Tumblr's team be forced to move into the Yahoo! offices? Is a remote office too remote? I think moving operations that work like that would be a mistake.
What is relevant is whether she can get the Tumblr employees on board with her monetization plan. David Karp doesn't seem like the kind of guy that can get on board with someone else's vision. I have a feeling he will be sidelined and then gone at the first available opportunity.