Yahoo Inc. announced a bold move when it confirmed that it is acquiring Tumblr for $1.1 billion. The social blogging site is popular with young adults, the exact same sorts of individuals that Yahoo wants to build into their audience.

Tumblr has long been a popular buyout target and it currently has roughly 117 million users. Still, Yahoo has failed to capitalize on social acquisitions in the past, like early social networking site Geocities and the popular photo sharing website Flickr.

“Certainly Yahoo has a track record of taking cool and making it uncool,” said Altimeter Group analyst Brian Solis. “Marissa Mayer is trying to bring Yahoo’s brand appeal to a different type of audience. Yahoo sees this as a path to future relevance.”

While Tumblr is a popular social network, it also has eschewed most normal advertising. This was by design from the site’s founder, David Karp.

Yahoo was formed as a homepage for the Internet, but that idea is fast becoming outdated. “It’s very much the generation gap,” said Alexia Tsotsis, co-editor of technology blog TechCrunch and an avid user of Tumblr since 2010. “Teens are forming their identities, and they just don’t want anything to threaten that identity, especially this Internet portal. They don’t even know what Internet portal means.”

“It’s pretty clear that Tumblr is a distinctly unprofitable business,” said Forrester Research analyst Zachary Reiss-Davis. “Yahoo is going to have to figure out how to monetize Tumblr users without turning them off from the service and making them want to leave. And it’s going to have to figure out how Tumblr users are going to produce revenue for Yahoo relatively quickly.”

While this deal has the potential to turn into what YouTube is for Google, one insider could see it as being what Myspace was for News Corp. “It’s a big purchase for a lot of money. If she’s right, it could help transform Yahoo,” said the person who spoke on condition of anonymity to preserve his relationship with both companies. “But in many ways Tumblr could be compared to Myspace: a lot of unmonetizable inventory and a lot of porn.”

Source: L.A. Times