Flickr: The ghost that haunts Yahoo

May 21, 2013: 7:47 AM ET

Recent upgrades to the once-innovative service notwithstanding, the photo-sharing site is a lesson in what not to do.

By Verne Kopytoff

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FORTUNE -- Flickr, the online photo sharing service, seemed to be heading for the big-time when Yahoo acquired it eight years ago. The site already had a lot going for it: legions of devoted users, a team of respected founders, and a headstart on the social media phenomenon. But Yahoo screwed up its potential bonanza. Executives starved Flickr of resources and tangled it in bureaucracy while other photo sharing services like Facebook and Instagram gained traction.

Marissa Mayer, Yahoo's (YHOO) chief executive, is now trying to avoid those pitfalls with Yahoo's latest acquisition, Tumblr, the fast-growing online blogging service. The planned $1.1 billion deal, announced Monday, is intended to reignite Yahoo's stagnant business by making its services more appealing to young people. Mayer's plan is to give Tumblr the independence that Flickr lacked. It's a strategy, she pointed out, that paid off handsomely for other companies and their big acquisitions.

"When we look at super-scale acquisitions like eBay-PayPal (EBAY), Google-YouTube (GOOG), a meme arises," Mayer said at a press conference Monday after being asked about how she'll avoid the past mistakes with Flickr. "Those companies have so much momentum, and they often do better when operated independently. Learning from that history is why we made a commitment to operate Tumblr independently."

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The ghost of Flickr -- along with a number of other failed acquisitions over the years like GeoCities, Broadcast.com, and Delicious -- haunts Yahoo to this day. Until recently, startup founders thought twice about selling their companies to Yahoo for fear that their hard work would be left to whither on the vine or killed off. Mayer, who became Yahoo's chief executive last year, long after Flickr's struggles started, has gone to great lengths to repair the company's image. Over the past few months, she's acquired several startups, most notably, Summly, which automatically summarizes news articles for people using mobile devices.

Tumblr is Mayer's biggest bet so far. It will remain in its own New York office, apart from Yahoo's other New York staff, to preserve its culture of innovation. David Karp, the 26-year-old high school dropout who founded the service, will remain in charge and report directly to Mayer.

How much autonomy he'll have is unclear. Spending unlimited amounts of money is unlikely. Big companies have limited budgets and a lot of priorities. On its own, Tumblr is believed to have little revenue, although that is supposed to change in 2014, according to Yahoo.

In acquiring Flickr, Yahoo executives also promised the service's founders that they would have some autonomy. To a certain extent, Yahoo kept its word by letting Flickr remain an independent site and keeping Yahoo branding on it to a minimum. However, Stewart Butterfield, who co-founded Flickr with his then wife, Caterina Fake, and continued to lead the service until leaving in 2008, complained that Yahoo executives pinched pennies when Flickr needed upgrades. Inaction slowed Flickr's international expansion, Butterfield said, and stalled a project that would have given more visibility to photos of breaking news events.

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After Butterfield's departure, Flickr continued to stagnate. A late push into mobile, for example, left the market wide open to a number of new rivals like Instagram. Flickr didn't release an iPhone app until 2009 -- two years after the first iPhone -- while its first Android app premiered in 2011.

Mayer made a point to say that Yahoo has installed an entirely new management team in recent years. The implication is that executives will be much more attentive when Tumblr needs resources. "It all comes down to people," Mayer said. "We have an all-new executive management team."

Tumblr gives Yahoo a springboard into social media, an area in which it has failed to make much progress. Instead, Yahoo has had to watch as others like Facebook (FB) reap the rewards. Flickr, with its once-tight community of photo enthusiasts who commented on each other's images, could have been a launching pad for a social network. But Yahoo executives, who discussed the idea publicly, never carried through with it as they instead focused on keeping up with Google in search.

Flickr lives on, of course. In fact, Mayer's press conference Monday focused on upgrades to Flickr including 1 terabyte of free storage, high-resolution images, and a new page design. Whether it's too little too late remains to be seen. Mayer effused optimism, saying: "Flickr was awesome once, and it languished. We're going to make it awesome again."

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