AOL buys Bebo for $850m

AOL has agreed to acquire social networking site Bebo - which has 40 million members - for $850m in cash. Compared with the $240m paid by Microsoft a few months ago for just a 1.6 per cent stake in Facebook, it looks like the social networking bubble may have burst.

Bebo is one of the leading social networks in the UK and is ranked number one in Ireland and New Zealand and number three in the US Its users view an average of 78 pages per usage day. Bebo has approximately 100 employees operating in offices in the UK, San Francisco and Austin, TX.

AOL said that together with its AIM and ICQ personal communications network, the acquisition of Bebo would give AOL a social network of approximately 80 million unique users.

The deal comes just one week after AOL's launch of Open AIM 2.0, an initiative that allows the developer community greater freedom to access the AIM network and integrate AIM into its sites and applications, and the announcement by Apple of a downloadable AIM application for the iPhone.

"Bebo is the perfect complement to AOL's personal communications network and puts us in a leading position in social media," said Randy Falco, chairman and CEO, AOL. "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."

"AOL understands the shifting dynamics of the Web and has clearly demonstrated its commitment to leveraging the ever-increasing power of social networks," said Bebo president, Joanna Shields. "With one and the same vision in this area, it was a natural progression for Bebo to join AOL and we look forward to working together to continue to expand the online social experience globally."

"Bebo's dynamic management team recognises that the Internet is less about destination and more about connecting people, culture and lifestyles," said Ron Grant, president and COO, AOL. "This acquisition supports our key objectives - accelerating the growth, engagement and monetization of one of the world's most engaged online communities."

Upon closing the transaction, current president Shields will continue to run Bebo and will report to Ron Grant.

"AOL is conspicuous as an online heavyweight that has not acquired, invested in or developed its own social network," commented Eden Zoller, principal analyst at Ovum. "Google has acquired YouTube, MSN has taken a stake in Facebook and Yahoo has incorporated social networking features across its properties, most obviously in Flickr, Yahoo 360 and Anwsers.

"AOL has tried fostering a community among its instant messaging properties, but it does not appear to have proved that effective and is not quite the same. Social networks are important to AOL and its rivals because they are seen as valuable advertising inventory and advertising is what they are looking on to drive future revenue growth.

"The $860m price that AOL has paid for Bebo seems reasonable and even a bargain in comparison with the $240m paid by Microsoft a few months ago for just a 1.6 per cent stake in Facebook. It looks like the bubble in the valuation of social networks has burst."

AOL was advised by Banc of America Securities LLC and Deutsche Bank Securities Inc. Bebo was advised by Allen & Co.

Image: Bebo is now wholly owned by AOL

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