iOS app Android app More

AOL to Pay $850M for Social Network Bebo

ANICK JESDANUN   03/13/08 06:25 PM ET   AP

Bebo Aol

NEW YORK — AOL stepped up its bid to boost traffic and advertising opportunities worldwide as the struggling Internet company agreed Thursday to pay $850 million for the online hangout Bebo and a foothold in the growing arena of social media.

Although Bebo remains in the shadow of MySpace and Facebook, it is strong in some foreign markets, including Britain. According to comScore Inc., its audience outside the United States is engaged, spending more time on average there compared with the leading rivals.

AOL executives say they are planning to tap that engagement to drive traffic to AOL's other free, ad-supported Web sites, especially internationally, while leveraging AOL's instant-messaging communities, AIM and ICQ, to try to grow Bebo in the United States.

"This is going to be the cornerstone of our strategy to really go after the social media space," Ron Grant, AOL's president and chief operating officer, said in an interview.

In a conference call with reporters, AOL Chief Executive Randy Falco called the acquisition "game-changing for AOL," a move that will power the company's strategic push into advertising.

AOL has been looking for ways to increase ad revenue to offset steep declines in dial-up Internet subscriptions. After several quarters of strong growth, AOL's advertising expansion has been slowing, putting pressure on the company's parent, Time Warner Inc., to sell the Internet unit.

Falco said Time Warner's willingness to spend $850 million in cash indicated its commitment to AOL's future, though eMarketer analyst David Hallerman likened the move to renovating a home before selling it at a higher price.

Company officials declined comment on recent reports that Yahoo Inc. has stepped up talks with Time Warner about buying or forming a joint venture with AOL as Yahoo tries to fend off a $40 billion-plus takeover bid from Microsoft Corp.

The Bebo acquisition could make a Yahoo-AOL deal less likely by adding one more integration headache to the mix, said Roger Kay, who heads the market research firm Endpoint Technologies Associates.

The deal is AOL's largest since it bought MapQuest for $1 billion in 2000 (not counting AOL's $106 billion purchase of Time Warner in 2001).

San Francisco-based Bebo Inc. has about 100 employees and plans to launch in five countries this year. New York-based AOL LLC said Bebo will be "featured prominently" in AOL's international expansion.

Unlike the $1 billion AOL has spent in recent years buying various advertising companies for their technology or platform, the Bebo deal essentially involves buying eyeballs.

It is an acknowledgment that AOL needs outside help in fostering a vibrant community around social media, where visitors are encouraged to strengthen connections through photo-sharing tools, messaging features and personal profile pages.

In a memo to employees, Falco said Bebo would let AOL "reclaim our heritage as a leader and innovator in the online community space."

AOL so far has failed to leverage AIM's strong community of buddies into a full-powered social network, despite such an attempt with AIM Pages. Yahoo, Google and Microsoft also have been struggling with their homegrown efforts.

Startups have been behind the most active networks online, and the Bebo acquisition serves to underscore their potential as gold mines for ad dollars.

Media conglomerate News Corp. bought MySpace for $580 million in 2005, and analysts believe the company could argue the network is worth more than $15 billion today, based on what Microsoft paid for a 1.6 percent stake in Facebook Inc., MySpace's next biggest rival. That stake went for $240 million in October, implying a $15 billion market value for the company as a whole.

Both MySpace and Facebook, however, have struggled to capitalize on their large audiences. Facebook drew strong criticism from its users when it unveiled its "Beacon" program for tracking and sharing information about their purchases and their activity on other Web sites.

Hallerman, the eMarketer analyst, said that despite Bebo's traffic, AOL won't necessarily find lots of ad opportunities there.

"It's just the category," he said. "There's a disconnect between traffic and monetization."

Bebo President Joanna Shields, who will stay on to run the network, said her site has successfully attracted sponsorships from major brands to run with original programming. With the targeting technologies AOL already has built and acquired, she said, Bebo should be able to extend that success to other formats such as display advertising.

"A lot of these (social-networking) companies are developing the types of assets AOL has assembled," Shields said in an interview.

It's not clear what would happen with Bebo's existing deal with Yahoo to run display advertising. Shields said it was too early to comment because the sale to AOL wasn't expected to close for another month.

Time Warner shares fell 25 cents, or 1.7 percent, to close Thursday at $14.51.

FOLLOW HUFFPOST BUSINESS

Filed by Michelle Kung  |