AOL unloads social networking site Bebo

Sells the site to Criterion Capital Partners

In an acknowledgment that it will never adequately compete with the likes of Facebook, Twitter and MySpace, AOL has sold Bebo for a fraction of the price it paid for the social networking site two years ago.

While the sale fits with the goals of CEO Tim Armstrong to shed nonprofitable assets and significantly rein in costs, the quick jettison of such an expensive acquisition drew a condescending rebuke from Steve Case, who founded AOL 25 years ago.

"AOL buying Bebo for $850 million and then selling two years later for $10 million doesn't seem like a winning strategy," Case tweeted Thursday.

That AOL -- when it was still part of Time Warner -- paid $850 million for Bebo in March 2008 is a matter of public record, but Case's assertion that AOL sold it for a mere $10 million is conjecture, albeit widespread.

Bebo was sold this time to Criterion Capital Partners, and neither party would discuss the price tag Thursday.

But AOL left clues in public filings that basically indicated Bebo's value was next to nothing. AOL said it will record a tax benefit of $275 million-$325 million because of the sale and that it regards whatever small amount of equity it will retain in Bebo as "worthless."

AOL sold almost all of the Bebo assets but kept some cash, a handful of contracts and office furniture, a spokeswoman said.

The company obviously had much higher hopes than the ignominious sale suggests, best illustrated by comments made by AOL's then-CEO Randy Falco two years ago. While announcing the Bebo acquisition then, he called it a "game changer" and predicted it would turn AOL into "a social media powerhouse."

But Bebo, though popular in the U.K., never gained traction in the U.S., where its audience has shrunk by half year-over-year to 5 million per month. In that same time frame, Facebook grew from 67 million unique users in the U.S. to 122 million, according to ComScore.

In a note to AOL staff, Armstrong said Bebo users can continue their service, and he called Criterion "well placed to drive Bebo's effort to strengthen its foothold within the highly competitive social networking arena."