Yahoo’s biggest problem as it tries to reinvent itself into an entity capable of challenging Google and Facebook is that it simply isn’t a ‘cool’ brand anymore. Hence, the majority of its users are a bunch of old farts, as its chief financial officer admitted at a Boston conference earlier this week:

“One of our challenges is we have had an aging demographic,” said Ken Goldman. “Part of it is going to be just visibility again in making ourselves cool, which we got away from for a couple of years.”

So what’s the easiest way to become cool again? Why, you simply by something that already is.

At least, that appears to be the rationale behind Yahoo’s proposed $1 billion acquisition of the hip blogging service Tumblr, which was reported by All Things D earlier today and later confirmed by Adweek. The second report spoke to two separate sources and seems convinced that the deal will go ahead, while All Things D’s report seems more circumspect.

What’s interesting is the value that Yahoo is attaching to Tumblr’s “Coolness”. No one’s denying that it’s hugely popular, but while its raised more than $125 million in funding to date it’s struggling to pay that back – last year, it reported revenues of just $13 million, although now its started selling ads it hopes that will increase to something like $100 million this year.

If the acquisition does go ahead it would be just the latest in a number of buyouts that CEO Marissa Mayer has presided over since the turn of the year. Just last week her company added two more startups to its portfolio – Milewise and GoPollGo – taking its number of acquisitions to ten since January. However the majority of these takeovers have been comparatively low-profile, aimed at securing the talent behind the products rather than the services themselves. That much can be observed by Yahoo’s decision to shut down most of the services its bought.

But the Tumblr deal will be completely different – Yahoo would have to be absolutely mental to go shutting it down. Nevertheless the question for Mayer will be how to go about monetizing the blogging service, which only just introduced a mobile ad platform a few weeks ago that lets brands advertise inside its mobile apps. Obviously Yahoo has a certain amount of expertise when it comes to advertising, and if this can be applied to Tumblr there’s a lot of potential to transform its “coolness” into big bucks.

Not that the acquisition is by any means certain. GigaOM reports that Yahoo is concerned that now its interest is known, Facebook might make a last minute move and beat them to it. It points out that David Karp, Tumblr’s CEO and co-founder, has a close relationship with key individuals at Facebook and happened to attend its recent Facebook Home event. Moreover, Facebook has the motivation – it’s no secret that the social network is concerned that younger audiences seem to be slipping out of its grasp, and it certainly doesn’t want to end up being seen as something for old fuddy-duddy’s like Yahoo is these days.

If it does plan to snatch Tumblr out of Yahoo’s grasp, Facebook will have to make its move pretty soon. All the signs suggest that Mayer is looking to tie up the deal as soon as possible, and she certainly has the cash to do so. Yahoo is reportedly going to sell half of its 23% stake in Chinese ecommerce site Alibaba when it launches its IPO next year. Currently, it’s valued at around $70 billion by Wall Street.

The only question is, will Tumblr prove its worth, or is this a case of Yahoo acting like one of those pathetic middle-aged guys hanging out with youngsters trying (but failing) to look cool?