AOL to Buy Social Network Bebo for $850 Million

NEW YORK — AOL said Thursday it is buying the Internet social network Bebo for $850 million, grabbing a piece of a fast-growing trend to expand the reach of its advertising.

Bebo, based in San Francisco with other U.S. operations in Austin, Texas, has 40 million members around the world and an especially strong presence in Britain. In the United States, it is a distant third behind the social networking giants MySpace and Facebook.

BEBO.COM (enlarge photo) AOL said Thursday it is buying the Internet social network Bebo for $850 million, grabbing a spot in the fast-growing social media world as it pursues online advertising and sheds a dying dial-up access business. Bebo has 40 million members around the world and an especially strong presence in Britain. In the United States, it is a distant third behind the social networking giants MySpace and Facebook.

The all-cash deal is expected to close in about a month.

AOL, a division of New York-based Time Warner Inc., was attracted to Bebo because of its growing worldwide membership and the potential for boosting AOL's online advertising strategy with a new audience, said Chief Executive Randy Falco.

In January, Bebo.com had 22.4 million unique visitors worldwide, while MySpace.com had 109.3 million and Facebook 100.7 million, according to comScore Inc. About 60 percent of Bebo's traffic came from Europe, with 22 percent from North America and 16 percent from Asia.

Last month in the United States, MySpace had 68 million unique visitors, significantly more than Facebook, with 32.4 million, and Bebo, with 4.8 million.

Media companies increasingly see social networking Web sites as a largely untapped business frontier, with many teen and young-adult users sought after by advertisers.

As AOL sheds a dying dial-up access business, it has struggled to remake itself into an Internet service supported by online ads.

Falco called the Bebo deal "game-changing for AOL."

"Bebo will be the cornerstone of our strategy to transform online experiences for advertisers, media companies and consumers," he said. "This positions us to offer advertisers even greater reach and marketers significant insights into the desires and needs of consumers."

Industry experts had mixed reactions to the deal.

"This is a promising opportunity, but it's all in the execution and there's no way of saying AOL is executing very well right now. It's in considerable turmoil on the ad side," said Jupiter Research analyst David Card.

"These social networks will prove to be very interesting marketing platforms, but it's early in the development of that kind of business and people are still learning how to do it properly," he said. "You'll see mistakes."

Card noted the backlash against Facebook when it unveiled its "Beacon" program, which shared information about user purchases and their actions on other Web sites.

Bebo has about 100 U.S. employees, including a customer service team in Austin with about 19 permanent members plus free-lancers and part-time staff, AOL said.

AOL does not expect major changes in Bebo's Austin operation after the deal closes, a person familiar with the deal said, speaking on condition of anonymity because the acquisition has not been finalized.

When the acquisition is done, Bebo President Joanna Shields will continue running the site while reporting to AOL President Ron Grant.

"Bebo's dynamic management team recognizes that the Internet is less about destination and more about connecting people, culture and lifestyles," Grant said. He said the deal supports AOL's growth strategy, which includes making money from online communities.

With high-speed online connections proliferating, the number of AOL dial-up subscribers continues to dwindle, dropping another 740,000 in the fourth quarter of 2007 to end the year at 9.3 million.

Last month, Time Warner CEO Jeffrey Bewkes said the company would split AOL's Internet access and online advertising businesses to "increase AOL's strategic options."

While investors and analysts have speculated those options could include an AOL sale or spinoff, Falco said Thursday that the Bebo purchase shows Time Warner is committed to AOL's future.

"They supported the strategy and they supported a rather big acquisition, so we feel very good about our relationship," he said on a conference call with reporters.

AOL's advertising strategy initially showed strong growth, but that has been slowing.

In recent months, AOL has been on a nearly $1 billion shopping spree for online advertising companies, including Adtech, Tacoda, Lightningcast and Quigo. AOL's goal has been building an ad-serving network called Platform-A.

Bebo is AOL's biggest purchase in recent years.

AOL also has launched 17 international Web sites in the last year and has further expansion plans. The company said Bebo will be featured prominently in that effort.

On the Web:

AOL: www.aol.com

Bebo: www.bebo.com