Betting big on Bebo bounce

AOL pays $850 mil for social networking site

AOL's acquisition of Bebo for $850 million will turn the portal into a player in the international social networking space, and some argued Thursday that it could signal that Time Warner is in no rush to unload its online unit.

Industry watchers also highlighted that the price tag of the deal is above the $580 million that News Corp. paid for MySpace a few years ago but well below the $15 billion value that a recent minority investment by Microsoft Corp. put on Facebook.

"The valuation in part probably reflects the realization that advertising inventory on social networking sites is a more difficult proposition than was previously believed," said Jason Forbes, vp media and entertainment at strategy and technology consultancy Capgemini.

Indeed, observers say that MySpace and Facebook have yet to fulfill the promise many have seen in them.

"This is a tremendous acquisition, one that I think is game-changing for AOL," AOL chairman and CEO Randy Falco said. "Bebo will be the cornerstone of our strategy to transform online experiences for advertisers, media companies and consumers."

With about 2.3 million unique visitors in February, according to Nielsen Online, Bebo lags far behind News Corp.'s MySpace and Facebook in terms of popularity in the U.S. However, it has more than 40 million worldwide users, making it one of the top social networks in other English-speaking nations.

The site is one of the leading networks in the U.K. and top-ranked in Ireland and New Zealand, for example. Plus, it has its sights on expanding into other European countries, like France and Germany.

AOL COO Ron Grant said AOL and Bebo had been in discussions for about five months. The social network recently had been the subject of acquisition rumors that had linked it to News Corp.'s MySpace and Yahoo, with AOL not seen by many as a potential suitor.

Many observers had suggested that new TW CEO Jeff Bewkes was eager to spin off or sell AOL, even though he has left his options open so far. Speakers on an industry panel Thursday at McGraw-Hill's 2008 Media Summit New York lauded the Bebo deal. Former ESPN chairman emeritus Herb Granath called it "a smart move" by Bewkes and his team. "He's saying now, 'Hey, we're a player and we're aggressive.' And this is the first step."

In a conference call, Falco said the acquisition further proves that TW has faith in AOL. "We've said to (TW) that, strategically, this is an incredibly important space to be in, and they supported us," Falco said.

He pointed to other acquisitions that AOL has made to further prove this point. The company said it has spent nearly $1 billion on online advertising acquisitions, including of such companies as AdTech, and Tacoda.

But Forrester Research analyst Charlene Li said the latest deal doesn't necessarily mean that TW wouldn't sell AOL for the right price as it will boost AOL's value. TW "is leaving their options open," Li said.

Grant vowed that AOL would "supercharge the monetization" of Bebo's audience with Platform A, AOL's company's ad-selling division.

He said the average Bebo user spends 40 minutes a day on the site. "That has been something that is very attractive to media companies," Grant said. "It's a great opportunity to bring advertisers solutions that fit their marketing."

Falco also stressed that Bebo's audience along with AOL's instant messaging services AIM and ICQ would be a potent combination. Li said this aspect of the deal was "tremendously important" for both companies. She pointed out that both services have a goal of helping users connect with friends and that Bebo could use AIM's large user base to introduce new customers to its service.

Bebo has been making inroads into the media community. The company unveiled its open platform last year, which allows media companies to put their content on the pages in whatever form they want and keep the ad revenue. CBS, MTV Networks, the BBC, Turner Broadcasting Systems, ESPN and Yahoo were among the companies involved here at launch.

Bebo also has original programming on the site. In October, the company said it partnered with Endemol to produce upcoming Web reality show "The Gap Year." The company also hosts serialized drama "KateModern," a spin-off of the "lonelygirl15" series.

Joanna Shields will remain president of Bebo and report to Grant. She did not comment specifically on post-acquisition plans for the company's founders, Michael and Xochi Birch. Falco said he expects the deal to close in about a month.