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AOL to Buy Bebo to Compete In Social-Networking Market

By Kim Hart
Washington Post Staff Writer
Friday, March 14, 2008

AOL announced plans yesterday to buy social-networking site Bebo for $850 million in an attempt to appeal to younger Internet users and expand its online-advertising business.

Bebo says it has 40 million members and is one of the most popular social networks in Britain. It is also the top-ranked social-networking site in Ireland and New Zealand. In the United States, Bebo is the third-largest such site, behind MySpace and Facebook.

The acquisition "puts us squarely in a leading position in social media at a time when it's growing at a fantastic rate," said AOL chairman and chief executive Randy Falco, calling Bebo a "cornerstone" of his company's strategy. Like other social-networking sites, Bebo allows its users to set up profiles, exchange messages and share photos. "It's not just about throwing more content at more people, it's about finding better ways to connect content owners, users and advertisers," Falco said.

AOL's Internet-access business continues to erode. To offset that decline, it has invested in online advertising. It spent about $1 billion to acquire six firms for its advertising portfolio, known as Platform A, which places ads on Web sites. To be closer to the advertising business, AOL moved its headquarters from Dulles to New York, but it still faces stiff competition from larger rivals Google and Yahoo.

Bebo's president, Joanna Shields, will continue to run the company.

Three-year-old Bebo has marketing partnerships with major media companies such as MTV, CBS and ESPN. It recently launched an Internet mystery show, "KateModern." In Britain, "Bebo" is the most searched-for brand, ahead of eBay and Facebook, according to market-research firm Hitwise. Members spend an average of 30 minutes, 26 seconds a day on Bebo, compared with 30 minutes, 7 seconds on MySpace and 21 minutes on Facebook.

But Bebo traffic trails that of the top two U.S. social networks. In February, Bebo had 4.8 million unique visitors, according to ComScore, which measures Web traffic. That compares with 68 million monthly visitors to MySpace and 32.4 million to Facebook. About 60 percent of Bebo's traffic comes from Europe.

It is not the first time AOL has tried to break into the crowded social-networking field. In 2006, the company launched AIM Pages to allow users of its popular instant-messaging program to create profiles and post photos and buddy lists. AIM Pages did not catch on, but AOL plans to integrate its instant messaging with Bebo's features.

The purchase "underscores AOL's shift to growing in offshore markets," said Laura Martin, senior media analyst for Soleil Securities. Social media are growing faster in Europe than in the United States, she said.

Some analysts said the price AOL is paying for Bebo, 50 percent more than what News Corp. paid for MySpace, is too high. In a conference call, Falco fended off such criticism by referring to Microsoft's recent $240 million payment for a 1.6 percent stake in Facebook.

"The expensiveness of the purchase will be determined by AOL's success at monetizing the site," Martin said.

Shahid Khan, a partner at Interactive Broadband Consulting Group, said acquiring Bebo strengthens AOL's position as a stand-alone media company and could help it overcome Yahoo and Google in the social-networking market. Google's social network, Orkut, has a small following in the United States. Yahoo introduced its social network, Mash, in September.

"AOL's previous acquisition of advertising assets will let it monetize Bebo's ads better than Bebo could do on its own," Khan said.

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