AOL Throws Bebo Out With the Bathwater

AOL has found a buyer for its social networking site Bebo. Although the sale price is undisclosed, it is rumored that Los Angeles-based private equity fund Criterion Capital Partners snapped up the site for US$10 million.

If true, that price represents a steep drop from what AOL paid for it two years ago: $850 million. AOL has said it will record a tax benefit of $275 million to $325 million in the second quarter.

Competing With Facebook

When AOL acquired the site, its chief executive at the time, Randy Falco, called it a game changer that would turn AOL into “a social media powerhouse.”

While social media, in general, have proven to be a game changer for the Internet, Bebo wasn’t able to compete with MySpace — which was in its ascendancy at the time of its acquisition — or, later, Facebook.

In March 2008, MySpace had 61.2 million users, according to Nielsen, while Facebook had 24.9 million.

Those numbers have radically changed, of course: Facebook now has close to 500 million members, with 117.1 million unique U.S. visitors in March 2010, Nielsen said. By contrast, MySpace had 42.1 million visitors hte same month.

With MySpace — and then Facebook — sucking the oxygen out of the social networking market, Bebo had little room to grow.

“Success in the social networking market really depends upon the size of the existing user base,” Jon Burgstone, founding faculty chair and adjunct business professor at University of California, Berkeley, told the E-Commerce Times.

“New users want to join the network where the largest number of their friends, families and colleagues participate,” Burgstone said, adding that in this kind of environment, “there tends to only be one winning company.”

AOL Falls Short

AOL needs to share some of the blame for why Bebo did not gain traction, Andre Zdanow, chief market strategist at Charles Vista, told the E-Commerce Times.

At one time, the site was considered an up-and-coming social network, he said. “Sure much of the reason why it floundered has to do with Facebook — but it also speaks to a broader failure of AOL to use it to maximum advantage.”

AOL has been trying, with limited success, to reposition itself since its heyday during the dial-up Internet era, and Bebo was just one more abortive attempt, said Zdanow.

“Look at what Facebook has done — it continually revamps itself,” he observed. “That is what social networks do to stay relevant. AOL didn’t do that with Bebo.”

AOL failed to take some steps that could have helped Bebo, agreed Greg Sterling, principal of Sterling Market Intelligence.

“It could have reinvented it as a mobile only network or used some of its platform tools to differentiate it and add value,” Sterling told the E-Commerce Times.

Going Forward

Criterion will likely do something along those lines, but it won’t be able to do it as well as AOL could have, Sterling said. “My guess is, Criterion will add value in a minimal way and then flip it for a little bit more than it paid for it.”

It is buying it at such a low cost it would won’t take much to accomplish that, said Tom Gerace, CEO and founder of Gather.

“They may hope to make money on the acquisition by spinning the business, perhaps converting it to a social platform behind an existing property,” Gerace told the E-Commerce Times.