AOL to pay $850M for social network Bebo

AOL said Thursday it will pay $850 million to acquire the online hangout Bebo, giving the struggling Internet company a foothold in an expanding business.

Bebo is strong in many markets around the world, particularly Britain, and has a global membership of more than 40 million, according to AOL. In the United States, however, it is far behind MySpace and Facebook in the number of monthly users, according to comScore.

Ron Grant, AOL's president and chief operating officer, said the deal should help AOL expand internationally and Bebo grow in the United States. He said the all-cash deal, expected to close in a month, also should give AOL an engaged audience from which it can generate additional advertising revenue.

"This is going to be the cornerstone of our strategy to really go after the social media space," Grant said in an interview, adding that AOL would be looking to integrate Bebo with its instant-messaging communities, AIM and ICQ.

AOL has been looking for ways to boost its advertising 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.

In a conference call with reporters, AOL Chief Executive Randy Falco said Time Warner's willingness to spend $850 million was indicative of its commitment to AOL's future.

The deal is an acknowledgment that AOL still needs to seek additional outlets for expanding its audience and its advertising opportunities. But it also underscores the growing value of social networks such as Bebo to media companies as potential gold mines for online advertising dollars.

Falco called the acquisition "game changing for AOL," one that will power key elements of the company's strategic push into advertising.

News Corp. bought MySpace for $580 million in 2005, but has estimated the network is now worth more than $15 billion. News Corp. also owns the Fox television and movie studios in addition to its newspaper and Internet holdings.

Facebook Inc., the No. 2 social network behind MySpace, now has a $15 billion market value, based on Microsoft's purchase late last year of a 1.6 percent stake for $240 million.

Both MySpace and Facebook, however, have struggled to capitalize on their large audiences. Facebook drew strong criticism from its users when it unveiled amid much fanfare its "Beacon" program that tracked and shared information about their purchases and other actions made on other Web sites.

David Hallerman, a senior analyst with the research group eMarketer, said that despite the traffic Bebo gets, AOL won't necessarily find ad opportunities ample.

"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 company, said her site has been successful attracting 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.

Falco said AOL also would have opportunities to "recirculate traffic from Bebo to our network," which includes ad-supporter properties like Moviefone and MapQuest.

AOL has launched 17 international Web sites over the last year and expects to expand to 30 countries outside the U.S. by the end of 2008. AOL said Bebo plans to launch in five countries this year and will be "featured prominently" in AOL's international expansion efforts after the deal is closed.