Flickr is getting three big updates. All users will get 1 terabyte of photo storage for free. The site’s interface is also being redesigned to focus on full-resolution photos — both in photo browsing and in search — rather than words and links. Users will be able to share the full-resolution photos by email, Facebook, Twitter, Pinterest and Tumblr. And, in addition to the iOS app Flickr launched last December, Yahoo is launching an Android app.

Flickr Pro, which had allowed users to pay for more storage space, is going away. “There’s no such thing as Flickr Pro today because [with so many people taking photographs] there’s really no such thing as professional photographers anymore,” Mayer said (though she acknowledged that there are “different skill levels”). There are still a couple of paid options: Users can pay $49.99 a year for an ad-free interface, and can add a second terabyte of data for $499.99 per year. It’s unclear what will happen with existing Flickr Pro memberships that users have already paid for.

On an investor call on Monday morning, Mayer had noted that there are “obvious synergies between Flickr and Tumblr,” but that it’s too early to say what those opportunities will be.

The choice of location for the press conference — a hotel in Times Square — became clear as Mayer announced that Yahoo has taken out a lease for office space at 229 West 43rd Street — the old New York Times building — and will be moving all 500 of its New York-based employees there. Tumblr’s employees, however, will stay downtown at their Union Square office.

New York City mayor Michael Bloomberg took the stage to say the move reflects “what a big player New York has become in the tech industry,” with Yahoo becoming “one of the largest tech presences in the city.” He noted that Tumblr is a “New York-grown company” and that NYC was the first city government to have its own Tumblr.

“Twenty years ago, if you looked out the window, there were plenty of yahoos in Times Square,” he said. “Now the Yahoos here will make an honest living … and help us grow and make our economy stronger.”

While buying Tumblr isn’t necessarily a bad deal for the two companies, as my colleague Mathew Ingram wrote, there’s another photo site out there that might have been an even better deal: Pinterest.

In many ways, Pinterest is also building a mobile-friendly photo site just like Tumblr, but Pinterest is also in the midst of constructing the underpinnings for a potentially much more lucrative native revenue experience. Pinterest is oriented around commerce and consumers craving particular items. That’s good for business.

No, buying Pinterest wouldn’t help Yahoo discover its inner tween. It’s a well-known fact that Pinterest is populated mainly by adult women — not exactly the demographic Yahoo needs to attract. And no, considering Pinterest’s valuation as of its last funding round, such an acquisition probably wouldn’t have come cheap. Acquiring the company would require a much bigger departure from Yahoo’s current mass-market advertising into the world of e-commerce and affliate links. It could be a harder sell to the company’s investors, and a bigger transition for everyone.

But if Yahoo is looking to shell out the big bucks for a site with viral growth, visuals to compete with Facebook, and a devoted community of users, Pinterest might have been the better choice. According to a Pew report in December, out of all online adults (which is basically anyone with an internet connection), just six percent of those people visited Tumblr on a regular basis, compared with 13 percent on Instagram (which isn’t exactly for sale), and 15 percent on Pinterest — only Twitter comes in at 16 percent ahead of the others and behind behemoth Facebook at 67 percent.

Less than a year out of beta, Pinterest is a dominant force on the web; a place where women of all ages collect photos of things that inspire them or things that they want to remember or create. For many, it’s a digital wish-list. And because of that, Pinterest sends huge amounts of traffic to online retailers. To be the intermediary between the people and the stores is a good place to be — you’re a crucial link that drives the sales, without any of the hassle of shipping or orders or user acquisitions that come with e-commerce.

Pinterest CEO Ben Silbermann at the company’s new offices in San Francisco.

Pinterest has no business model in place right now — the site is free to join and for brands to integrate with — but that’s just right now, and it likely won’t last. The company just announced yesterday that it is starting to connect photos of items back to the brands who sell them, and it’s not hard to image how this could play out.

Tumblr does have a business model right now based on ads, and it just started rolling them out on mobile users in April. But the company has been reportedly burning through cash and not yet making a lot of revenue, hoping to bring in $100 million this year. But people are usually pretty unhappy about a free product suddenly peppering them with ads — especially if those ads are dropped into a feed that users have created (just ask anyone how they feel about Facebook ads.) CEO David Karp said at our paidContent event just last month that he wants advertising on the site to be native and unobstrusive.

“We focused on higher up in the funnel, the type of advertising that creates intent,” Karp told us in April. “It gives room for the most creative advertisers to create their best work. I think we’ve started to prove it, and see really good examples of it.”

But that’s a hard nut to crack.

Suddenly, the possible Pinterest model of taking a cut on sales and traffic resulting from users creating digital shopping lists looks a lot less disruptive to the core experience, and potentially more lucrative, than trying to solve mobile display ads for the Tumblr feed. Making money off traffic and sales wouldn’t disrupt Pinterest’s core product, and would generally fit in with the company’s existing user experience, just as promoted tweets are fitting with Twitter’s on both desktop and mobile (a profitable venture so far estimated to bring Twitter $528 million in ad revenue this year.)

So no, buying Pinterest wouldn’t make Yahoo all that hip. But buying the site that has potential to become a strong force in modern, social retail? Seems like a good bet — especially since teens might leave you once Mom joins and you become mainstream.

“Part of our strategy here is to let Tumblr be Tumblr,” Mayer said. In fact, Tumblr CEO David Karp wasn’t on the morning’s call: He was at an all-team meeting. (“Instead of calling his all-company meetings ‘all-hands,’ he calls them ‘all-team,’”Mayer noted. “I think in the future we’ll call meetings at Yahoo ‘all-team’ meetings.”)

“When you look at the best and most-successful billion-dollar acquisitions in the tech space — eBay and Paypal, Google and YouTube — there’s a meme that emerges,” Mayer said. “The best acquisitions…allow the two brands and the two products and services to evolve somewhat separately.”

Yahoo has “well over” 700 million users, Mayer said, while Tumblr has 300 million — but these audiences overlap so little that the companies can count their combined user base at over a billion.

The difference in user demographics, Mayer acknowledged, means there’s “a type of user that will always prefer Tumblr and may never come to Yahoo” — and that’s fine. Yahoo can “provide search seamlessly in the background” for Tumblr, but it could be existing and future Yahoo users that benefit most from the Tumblr acquisition: “As we pull Tumblr content into our news feeds and our media experiences, it will cause the core Yahoo properties to become that much more interesting and that much richer,” leading more users to the site even if they are from “very different [demographic] profiles from people coming to Tumblr.”

Tumblr users should get ready for more ads

Tumblr will remain a separate site, but that doesn’t mean its users won’t notice a few changes — particularly on the advertising front. “There’s a number of different places where we think we can monetize in a way that’s meaningful and really additive to the user experience,” Mayer said. Tumblr is already including a few ads in its dashboard, but ”we would like to look at that and understand how we can introduce ads — a very light ad load where the impact is really created because the ads fit the user’s expectation and follow the form and function of the dashboard.”

In addition, Mayer said that Yahoo might allow individual Tumblr users to enable ads on their blogs, “but that would always be done with the blogger’s permission.”

So what about Tumblr CEO Karp’s well-known dislike of advertising? “David talks wistfully about the ads that he saw as a child, that would make him want to go see a movie or own a particular type of car,” Mayer said. “He says the current state of internet advertising doesn’t aspire to be as good as the content itself. We think that should change…we’re aligned in those ideals. When you hear us talk about native ads, where the ads are every bit as good as the content, and maybe even make the content better — that’s what we are aiming for. We want the ads themselves to create that aspirational feel that, for example, television ads or movie ads do.”

So, uh, what about Flickr?

In 2005, Yahoo acquired photo-sharing service Flickr. That acquisition, long before Mayer’s time, is widely viewed as a big failure — one that ruined the Flickr experience because Yahoo tried to integrate it, then largely abandoned it.

On Monday afternoon, though, Yahoo is expected to announce updates to Flickr. Could we see a resurgence in that platform, as part of Yahoo’s new “don’t-screw-it-up” acquisition philosophy? Mayer was cautious: “In terms of how Tumblr evolves, it really depends on the creators,” she said. But when it comes to Flickr, “I think it is noteworthy that a lot of the posts on Tumblr are graphical. There’s some obvious synergies between Flickr and Tumblr, in that regard,” and it’s “probably something we’ll turn our attention to in the future. Flickr could provide great storage for albums or slideshows, things like that. We’ll see.”

After reporting Thursday that Yahoo was considering a number of options for Tumblr, including partnerships or strategic investments, ATD reported Friday that Mayer had decided to go all in. Om reported Thursday that Yahoo was worried about counteroffers from Facebook, much how Facebook stole Instagram from Twitter after Twitter co-founder Jack Dorsey’s courtship of the photo-sharing site. Now the board plans to meet Sunday to consider giving final approval to the offer.

Tumblr’s backers will likely be pleased with a $1.1 billion price tag, especially if, as reported, it involves cash However, it’s far from certain that such an outlay would do anything to revive Yahoo’s fortunes. Mayer certainly has been trying to bring new blood into the company of late, snapping up a number of smaller mobile startups before focusing on Tumblr over the last month.

Yahoo has scheduled a press event for Monday evening in New York to discuss “something special,” but it wouldn’t hint at anything else. We’ll be there to cover the event, but in the meantime, here’s Tumblr founder and CEO David Karp’s appearance at our paidContent Live conference in April, discussing his company’s fortunes:

The news of the pending deal was first reported by AllThingsD and later Adweek reported rumors of their deal as well. At least a couple of our own sources say that the talks are serious. We have also learned that the deal is being championed by CEO Mayer, who according to Kara Swisher, has met with the team from Tumblr. We have learned that Yahoo’s New York-based corporate development team is leading the process, though like all deals, talks could fall apart. (We have reached out to the respective parties for their comments, but so far we have not heard back from them. We are going to update the post to reflect their responses.)

Tumblr says it has nearly 108 million blogs, over 50 billion posts and it is said to have 117 million visitors a month according to comScore. Forbes.com reports that Tumblr made $13 million in 2012 and is looking to bring in about $100 million, thanks to its new advertising initiatives. The company also recently introduced mobile advertising. For Yahoo this could be a much needed foray into mobile advertising and also into pushing new native ad-formats that help diversify its ad business away from the usual web advertising.

Valley calls Karp

David Karp, one of the co-founders and chief executive of Tumblr, has been seen around in Silicon Valley. Tumblr has been trying to raise a new round of funding, but it’s slower than expected revenue ramp has acted as a dampener for the fundraising efforts. Tumblr has raised a total of $125 million and is rumored to be valued at $800 million. Tumblr investors include Union Square Ventures, Spark Capital, Sequoia Capital and Greylock Ventures.

But Yahoo may not be alone in courting Tumblr. In November 2012, my colleague Mathew Ingram argued that Facebook and Tumblr should poke each other. Surprise surprise, it is something that is nagging Yahoo bigwigs.

Facebook in the mix?

We have heard that Yahoo is worried that Facebook could swoop in at the last minute and beat it to the buzzer. If the Instagram acquisition was any indication, then we shouldn’t doubt Zuckerberg’s salesmanship. Karp is said to have a close relationship with Facebook and was recently spotted at the Facebook Home launch. Facebook could use the much needed younger 18-to-24 year old demographic, something it (successfully) tried to acquire with Instagram. A Facebook spokesperson declined to comment.

One question is why wouldn’t Google want Tumblr? After all, it would mean young people on a social network that could feed into Google+ — sort of like how Blogger fed pages into Google. I am guessing given its ownership of Google+ and Blogger, Google might meet some resistance from the Department of Justice. Still, as our sources pointed out, Yahoo knows the challenges in the competitive landscape and is trying to move very fast. The speed would perhaps mean that the company could short circuit the due-diligence process and overlook Tumblr’s challenges with content of questionable provenance.

Money Talks

The good news for Tumblr and its backers: Mayer will soon be super flush with cash. According to a recent Yahoo 10-Q filing, the value of Yahoo’s stake in Alibaba has gone up substantially as Alibaba’s continues to grow its revenues at a healthy clip. Yahoo owns about 23 percent of Alibaba and the Chinese eCommerce company is likely to go public and could worth as much as $100 billion in its post-IPO avatar. Yahoo is expected to sell about half its stake in the Chinese company in the likely 2014 IPO. Wall Street currently values Alibaba at around $70 billion.

In the end the question that remains: is Tumblr the fountain of youth that Yahoo badly needs or will this be a case of a pathetic middle aged guy hanging with youngsters, trying to be hip. Either way, Tumblr founders and backers could laugh all the way to the bank.

PS: Read this teenager’s response to a question on Quora, “How do teenagers waste hours upon hours consuming Tumblr?”

“We want to have a portfolio approach — no one is going to use the whole suite of products,” said Mayer, adding that Yahoo is fine with an à la carte approach where different users pull up two or three of what the company calls its “daily dozen” tools such as stocks or weather.

Speaking with Wired’s senior writer Stephen Levy, Mayer also addressed the role of video; the company has earned some buzz in this area with announcements that it acquired the rights to Saturday Night Live clips and that it will be putting out original shows like “Losing Your Virginity with John Stamos.”

This appears to be part of what Mayer calls a “tiered approach” in which Yahoo will put out a small tier of original content alongside a larger tranche of curated content from across the web, as well as encouraging user-generated fare on Flickr.

The CEO also addressed, once again, her diktat to curtail working from home — a controversial decision that’s provided nearly endless grist for debates over gender and workplace.

“I didn’t mean for it to be an industry narrative,” she said. “We were just saying it wasn’t right for us right now … Everyone at Yahoo works in teams [and] stopping “causes drag.”

She added that the policy has lots of exceptions and been really well-received inside the company, and argued that it has produced a “Reese’s peanut butter effect” that can only happen when disparate people run into each other on the job.

In response to Levy’s question about search, Mayer said she “believed in it” and “understands it” (which is no doubt true after her long tenure at Google) but that the company will continue to hitch its wagon with Microsoft on the search front for the time being.

As for a description of the company’s “moonshot,” Mayer said it was to be on billions of screens. And, in a note that may give hope to exasperated investors, she added that she wants the company to return to faster-than-market growth.

The young Brit created Summly to try and help solve the problem of consuming news content on a mobile device (something a number of others are focusing on as well, including San Francisco-based Circa). The app created machine-generated summaries of news articles, and D’Aloisio said in a phone call from London that he wants to see what Yahoo can do by applying the same kind of algorithmic approach to some of the company’s other news and entertainment content:

“It’s going to be a really fun journey. To see where we can take our technology with Yahoo’s focus on mobile under Marissa Mayer will be really exciting… there is so much opportunity to take these daily habits like weather, news, stocks and sports and use technologies like Summly to really turn them into an A-star experience. And I want to be there for as long as I feel is necessary to get Summly and Yahoo really doing well with mobile.”

Yahoo has a chance, D’Aloisio says

Although Yahoo has been criticized by many (including us) for being too large and slow to adapt to the new age of digital content, D’Aloisio said that he is excited about joining the company, and thinks that Yahoo under Marissa Mayer has a chance to be great again:

“Definitely with the approach they are taking at the moment — they’re moving at light speed, and it’s really exciting to be joining the company at this stage, because there’s so much opportunity in the next 12 to 24 months to take technologies like Summly and the other assets they have, like the newsroom and all of this content, and take it to the larger mainstream.”

The Summly founder said that while many see Yahoo as an also-ran, he thinks the company still has a chance to take advantage of the millions of users it has:

“Yahoo to me, as the founder of a company, is one of the biggest opportunities you could have — it’s one of those classic internet companies… the fact is that they have massive leverage in the industry, they have hundreds of millions of people coming to their content every month, and it’s really exciting to be building for that scale. That’s the exciting thing — it’s the scale that Yahoo brings, and that user base, that I really want to build products for.”

A “surreal journey” at times

D’Aloisio also admitted that he was surprised at how something that began as a hobby has turned out, and how much he has accomplished at such a young age:

“It’s a surreal journey. I guess I always saw this as a hobby — it’s just a passion of mine. And the fact that it’s [resulted in] an acquisition is something I never expected… and it wouldn’t have been possible without Horizon Ventures and Li Ka-shing, who took a gamble on me as a teenager. I really owe it to them and to everyone who has been by my side supporting me.”

The young entrepreneur said he has had a number of learning experiences along the way — including one described in a Gizmodo post from 2011 entitled “How I Made a 15-Year-Old App Developer Cry” — but added that it has been “a really incredible journey,” and he is looking forward to the next chapter with Marissa Mayer and Yahoo. One thing is for sure: If everyone at the company was as eager as D’Aloisio seems to be, the company would have no reason to fear the future.

The most obvious appeal of a purchase like Summly is that Yahoo gets access to a brilliant and charismatic young programmer in founder Nick D’Aloisio, who started the company in Britain when he was just 15. Om met D’Aloisio in Berlin and did an interview with him about the concept behind Summly not long after the teen launched his startup, and described how far ahead he was of many of his much more experienced peers. If nothing else, D’Aloisio might inject some fresh thinking into Yahoo, something it desperately needs.

Nick D’Aloisio

It’s not just fresh thinking about content or design either: while it may not be a blockbuster success story like Instagram or SnapChat, part of what made Summly interesting is that it was an attempt to rethink how we consume content on a mobile device. Circa, which is funded by Cheezburger CEO Ben Huh (and is part of our startup showcase at paidContent Live in April) is another startup focused on the same problem: how does news content need to be rethought for mobile?

Yahoo News may be far from cutting edge, but it still pulls in a fairly large audience — far larger than Google News. If Yahoo can use D’Aloisio and Summly’s algorithms to figure out how to take advantage of that on a mobile device, it could potentially have a winner on its hands. Google has done virtually nothing to optimize its news-reading experience for mobile, and efforts at recommendation or curation apps like Currents have mostly fallen flat.

According to an All Things Digital report, Yahoo may have paid as much as $30 million — primarily in cash — for Summly. That’s a lot for an app that only racked up about a million downloads and hasn’t really taken off in terms of readership, but for Mayer it theoretically accomplishes two important things: it shows that the company is intent on figuring out how content works on mobile, and it sends a message that Yahoo is willing to make acquisitions and bring in new talent in order to fix itself. Whether those efforts work, of course, remains to be seen.

Post and thumbnail image courtesy of Getty Images / Chris Jackson

In a post announcing the launch at Yahoo’s “Yodel Anecdotal” blog, Mayer talks about how the site has been redesigned to provide a “stream” of news and information that scrolls onward for as long as a user might like, instead of just a big static chunk of headlines. As she puts it:

“Since streams of information have become the paradigm of choice on the web, we’re introducing a newsfeed with infinite scroll, letting you experience a virtually endless feed of news articles. Whether you are a sports fanatic or entertainment buff, you can easily customize your newsfeed to your interests.”

We have a news feed just like Facebook!

Mayer is right that streams have become the paradigm of choice, but that particular boat set sail a long time ago — Facebook first introduced the News Feed, which has become the go-to news and information source for hundreds of millions of people, in 2006. Twitter, the other news source that pioneered the real-time stream of information, was also created in 2006 and how has hundreds of millions of users. Facebook, of course, recently crossed over the 1-billion-user mark.

That’s not to say a company couldn’t reinvent the real-time news stream, it just means that if Yahoo plans to do so, it’s going to have to try a lot harder than if it had embarked on such a strategy four or five years ago. All the new Yahoo page appears to do is let headlines scroll beyond the little box that the site used to put them in, something that even newspaper websites — hardly the epitome of innovation — started doing a long time ago.

A more detailed post on the changes from Yahoo’s VP of product, Mike Kerns, describes a great new feature that lets users “click a button that allows you to share the story via email, Facebook, or Twitter.” If that strikes you as something dramatically new, then you haven’t been paying attention.

We have apps too, just like Facebook!

Mayer also talked about new “applications” that Yahoo has added, so that users can always see their updated weather and sports scores, something that again feels like a revamping of a decade-old strategy. The customized portal with tiny news and information “apps” was something that was popular years ago via players like Pageflakes and Netvibes — and Google went after it with iGoogle, an offering it recently decided to mothball. Why? Because it wasn’t providing nearly enough bang for the buck, presumably.

Yahoo is also boasting about the fact that you can now log in with Facebook and see all your friends’ birthdays and other activity — a feature that Facebook first started offering with its Facebook Connect platform launch almost three years ago, and one that is now used by hundreds of thousands of news sites. This offering is not only late, but reinforces how much of Yahoo’s strategy seems to rely on partnering with others, something that is at best an unlikely route to success.

Some supporters of the company argue that Yahoo could reach out to developers of apps that it could run on its home page or in user’s streams, in the same way that Facebook has built much of its success on top of game or app companies like Zynga. But can Yahoo offer anything even close to what Facebook can, either in terms of reach or revenue? And are new versions of Candy Crush Saga or Farmville really worth banking Yahoo’s future on?

It’s true that Yahoo still has hundreds of millions of loyal users, but then so does AOL’s dial-up business — in other words, there may still be value there, but it is in a process of gradual (and likely accelerating) decline. Yahoo Finance still has its fans, and so does the site’s fantasy sports offerings, but the reality is that its overall traffic has been falling, and tweaks to its home page offerings are not going to reverse that in any significant way.

In that sense, Mayer’s much-hyped relaunch of the home page seems a lot like adding a new coat of paint and some racing stripes to your old Chevy. It may make you feel better, but it’s not going to go any faster.

In case you missed it, Yahoo’s earnings came in at 32 cents a share yesterday which is better than the 28 cents that analysts had predicted. On the investor call following the earnings report, CEO Marissa Mayer stressed partnerships and the “tremendous internal transformation in the culture, energy and execution of the company.” She claims to have fixed hundreds of pressure points in the Yahoo bureaucracy and boasted that company employees worldwide are now enjoying free cafeteria food.

These are tactics, not a strategy. The reality is that Yahoo is still getting pummeled in its core business of display advertising and its search business, while posting higher revenue, is still losing market share. Despite some nifty content offerings (especially its finance and sports), the company is struggling for relevance in a world where no one says “portal” anymore. And while its stock is flying high, a big reason for that is Yahoo plowing money from asset sales into share buybacks.

To get an idea of where Yahoo stands, recall that the company was once regarded as an internet “giant” and that it stood astride the tech world like Apple and Amazon do today. Now, look at the chart below to see its relative significance today:

The other companies on the chart are not just other tech companies, but the companies with which Yahoo must compete directly. Google and Microsoft remain genuine giants while Facebook is still much smaller but, unlike Yahoo, is poised for powerful growth in the next two years. And, as my colleague Mathew Ingram noted, “partnering with everyone else is not a winning strategy.”

Mayer said on the investor call that Yahoo’s biggest opportunities lie in “search, display, mobile and video” but gave little indication how it would dislodge its immediate competitors — let alone the likes of Twitter, Tumblr and other upstarts.

The best that can be said for Marissa Mayer’s Yahoo is that the company is not outright dysfunctional. But it still needs a competitive advantage and a growth strategy. Until it has those things, let’s not waste our breath talking of a turnaround.

(Image by  Olesia Bilkei via Shutterstock)