AOL's swoop on Bebo is looking like a smart move

by Steve Barrett, Media Week 18-Mar-08, 09:00

AOL's acquisition of Bebo last week raised eyebrows in some quarters when it was announced that the web services company had laid down $850m (£419m) for the third-largest social network in the US.

Cynics noted that no revenue figures were revealed in any of the deal documentation and pointed to Google's revelation in its last financial results that it was having more difficulty selling advertising on the News Corporation-owned social network MySpace than it originally envisaged, as evidence of the weakness of the social network business model.

But let's get this all in perspective. Back in the heady days of the dotcom boom, AOL executed a reverse takeover of Time Warner for the incredible sum of $165bn. Last week's outlay of $850m seems like small change in that context. Microsoft made its social network play by buying a small part of the Facebook pie for $240m last year. It also sells the ads on Piczo. And News Corp paid $580m for MySpace back in 2005.

For its money, AOL will get another significant social networking string - including 11 million UK users - to add to what it calls its Platform A advertising bow, which includes elements such as ad network Advertising.com, behavioural targeting technology Tacoda, affiliate network Buy.at and contextual advertising technology Quigo.

There will always be cynics who believe social networking will never pay its way and that it's a case of the emperor's new clothes all over again. Media Week's best efforts suggest Bebo brought in revenue of $20m in 2007, which is expected to more than double to $50m this year. Not stunning, but something to work with.

It's also another nail in Yahoo's coffin, which will not hold on to the contract to sell advertising on Bebo now it is part of AOL. So, despite the nay sayers, the Bebo purchase makes a lot of sense and is not a bad deal for AOL.

It has already got rid of its ISP arm in the UK and other parts of Europe and is expected to do so in the US in due course. It has gone through some very tough times, made itself leaner and meaner, and reshaped its business to focus on being an advertising player. It now has a more credible offer to take out to media agencies and clients.

Steve Barrett is editor of Media Week
steve.barrett@haymarket.com
www.mediaweek.co.uk/stevebarrettblog

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