AOL to Acquire Bebo for $850 Million

By Michael Santo
Editor-in-Chief, RealTechNews

In a surprise move, Time-Warner’s AOL division on Thursday announced it has acquired Bebo for $850 million in cash. Bebo claims a global membership of about 40 million users and is the top social networking site in Ireland and New Zealand. It is No. 3 in the United States behind MySpace and Facebook, but it trails badly there.

Rumors about Bebo being acquired have been circulating since February. In a press release, Randy Falco, Chairman and CEO, AOL said:

“Bebo is the perfect complement to AOL’s personal communications network and puts us in a leading position in social media. What drew us to Bebo was its substantial and fast-growing worldwide user-base, its vision of a truly social web, and the monetization opportunities that leverage Platform-A across our combined global audience. This positions us to offer advertisers even greater reach and marketers significant insights into the desires and needs of consumers.”

Meanwhile, as we’ve seen lately with Yahoo! CEO Jerry Yang, Randy Falco sent a similar email to AOL employees, with full use of the shift key, however. An excerpt is below; the full email can be read here.

Dear colleagues,

I’ve said many times that my vision for AOL is that we become a global, market-leading ad-supported digital media company. Today, we’re taking a major step toward realizing this ambition.

We’re announcing plans to acquire Bebo, a leading global social media network founded in 2005 that has a worldwide membership of 40 million.

This acquisition is game changing for AOL for a number of reasons. It puts us squarely in a leading position in social media at a time when it’s growing at a fantastic rate. It will help power our strategic priorities across the board. And, just as important, by acquiring Bebo we can reclaim our heritage as a leader and innovator in the online community space.

This move places a large question mark on talk of an AOL - Yahoo! merger. Yahoo! doesn’t have a competing product, so there’s no conflict there, but it would seem the additional complications would place a damper on prospects of such a merger - though that doesn’t mean it still can’t happen.

Another issue: Yahoo! currently serves ads on Bebo. When asked about this during the conference call, Bebo president Joanna Shields declined to comment, saying it was too early to discuss.

AOL also said during the conference call that AOL’s intention, its intention is integrate AIM and ICQ with a social network. As they said:

The U.S. is number 3 is a pretty big deal and why we are so excited about the future opps is the combo and integration of ICQ and AIM with Bebo. There is no other social network that will have that kind of power.

Finally, one question on the conference call regarding the price: some in the blogosphere have said the deal was overpriced, at $21.25 a member. This was rebuffed by Falco based on history. Certainly if you look at investments in MySpace and Facebook you can make some decent comparisons:

• News Corp / MySpace, July 2005: $580 million, or $21.80 for each of the network’s 27 million (at that time) members. This was a steal, anyone would say today.

• Microsoft investment in Facebook, October 2007: an investment of $240 million (or a valuation of $15 billion), or $300 for each of the network’s 50 million members. Big difference there, but look at Facebook’s market share (12.57%) vs. Bebo’s (1.24%) the ratio’s not too far off. Of course, few believe the $15 billion valuation of Facebook.

So, did AOL get a good deal? Too early to say, but one good stats about Bebo members: the press release says they view an average of 78 pages per day. That’s pretty impressive and shows a high level of user engagement, and definitely a good thing, particularly with ads on said pages.