Bebo Shuns $550 Million Acquisition Offer

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1. Robert Dewey
   

   July 10th, 2006 at 8:37 pm

   As long as it’s enough money to line my halls with gold, I would have sold. Facebook turning down $1B … That might have been the biggest mistake of the century.

   I’d be more than happy if they made the right decision, and did end up selling for north of $1B (that goes for both Facebook and Bebo).

2. BK
   

   July 10th, 2006 at 8:51 pm

   Things like this make it seem like the Myspace deal was a bargain. I would have taken that offer in a hearbeat, but perhaps Benchmark wanted more? If this rumor is true, it’s good news for Facebook and other social network sites since it ups the price for them as well. What does everyone think? Is a popular social network site truly worth in the billion dollar range?

3. Patrick
   

   July 10th, 2006 at 9:18 pm

   Reminds me of PointCast spurning the News Corp offer — purported to have been in the neighborhood of $450M –back in the day. A few years later, PointCast sold for about $7M.

4. Kelly E. Smith
   

   July 10th, 2006 at 9:29 pm

   I have a thought that this is simply hearsay and NOT true. I love reading these blogs but its been twice in a week where I’ve seen completely inaccurate reports on buyout and acquisition prices (based on insider or shareholder information). If it’s in print, it isn’t always true. We need people to remember that at all times. The willingness of entreprenuers to market themselves and the desire to report the “big deals” causes inflated numbers. That’s fine. It’s all good sport to me. But, it isn’t always true. Having said that, it is true that BT has been taking to Bebo but these figures are not correct.

5. Devin
   

   July 10th, 2006 at 9:43 pm

   BK: MySpace will officially be a bargain when a company actually does purchase one of these competing sites for $1 billion+.

   I personally think it’s insane that anybody would offer this much money for this type of site in such a saturated market, regardless of how many users the site has. A high school student can develop a social networking application with all the same features so in terms of technology there is very little of value and the barrier to entry in this space is non-existant. Obviously, it’s the userbase (’eyeballs”) these potential buyers are after, even though none of these sites are said to be turning a profit. What we’re seeing is a technology arms race in which major media companies are afraid they’re going to miss out on this new trend and are willing to spend ridiculous sums of money to keep up with the Jonses.

   That said, these buyers aren’t completely stupid and I think the case of Facebook shows that. According to reports, Facebook has been told by interested buyers that the $2 billion they’re asking for is ridiculous. Hence, they haven’t been purchased and instead raised more money from VCs.

   With each passing day this bubble grows and I think eventually many of these companies will regret not taking the buyout offers. Many people seem to forget that Google once offered $20 million cash for Friendster. Look at Friendster today. They apparently coudn’t find a buyer at $10 million years later.

   And don’t forget Tribe.net, which NBC just bought for under $5 mil (less than the total amount invested in the company by VCs). I personally believe NBC made an intelligent move with Tribe.net in that they wanted to get in on the social networking fad but resisted paying an ungodly amount to do so. They now have a property that has an existing userbase (although nowhere near the size of MySpace) that they can try to grow further. There’s a good chance it will flop, but for $5 million, the risk-to-reward ratio is acceptable to shareholders. It’s not as sexy a deal as News Corp. buying MySpace, but since none of these sites are reported to be profitable, News Corp. is under an incredible amount of pressure to make MySpace a positive impact on its bottom line. If it does not succeed with that soon, you can bet there are going to be a lot of unhappy shareholders.

   The one thing I would love to know more about is the internal debates that go on at these startups when they receive an offer like this. I suspect that the decisions to turn these offers down are really being made by the VCs. I don’t question that the founders of these sites are intelligent people, but I don’t see any Bill Gates or Larry Ellison business genius in any of them. They were simply at the right place at the right time and found themselves in the position to take advantage of a bubble. Unless the greed epidemic in this culture is worse than I thought, I can only guess that the VCs are convincing guys like Michael Birch and Mark Zuckerberg that they should turn down life-changing wealth and hold out for billions instead.

6. Jay
   

   July 10th, 2006 at 9:48 pm

   Devin:
   It is not the VCs who are driving thefacebook to reject offers that easily exceed $1 Billion.

7. Devin
   

   July 10th, 2006 at 9:53 pm

   Follow up question to fellow Tech Crunchers:

   Does anybody have any idea what the burn rate is at companies like Bebo and Facebook? I know Facebook has around 100 full-time employees. Anybody know how many Bebo has? Infrastructure must cost a pretty penny. If the reports are true that these sites are not profitable, the question becomes whether they can survive long-term.

   If I remember correctly, the last round of financing at Facebook had the company valued at around $500-$550 million. If all these rejected buyout offers end up disgusting the potential buyers so much that they drop their pursuits, how long will VCs be willing to continue to plow $15-$25 million into these companies at ever higher valuations that real buyers aren’t going for?

8. Don Wilson
   

   July 10th, 2006 at 9:55 pm

   Why are these social networks so cocky?

9. Devin
   

   July 10th, 2006 at 9:58 pm

   Jay: your comment implies that it’s the kids who founded the site (Mark Zuckerberg et. al.) behind the excessive greed. Very sad if that’s truly the case, seeing how they started the site with nothing. Hope it works out for them, but if it doesn’t, I think they’ll make great candidates for The Business Darwin Awards.

10. jw
    

    July 10th, 2006 at 10:13 pm

    Guys,

    I think most of you are over simplifying Bebo’s rejection.

    Bebo must have his reason to reject this offer. Let us not forget just how much myspace is worth and the fact that many user sessions on these SN sites are longer than 30 minutes per with multiple sessions per day. (trust me, I am posting this because I know these numbers to be true)

    Was $560mil for myspace too much? I think most of us now will say “NO.”

    And by the way, I don’t think greed is the only motivator here. As a business person, they have to weigh the true value of their company with what the market will bear @ the moment. For now, I think Birch is right to hold out on an offer like this, though I gotta say, I would have taken it, but then, I am not rich, so $550mil seems to be an aweful lot of money to me.

11. Devin
    

    July 10th, 2006 at 10:51 pm

    jw: A company is worth whatever somebody is willing to pay for it. Basic economics. Facebook thinks they’re worth $2 billion. The market, so far, says otherwise. It does not matter that the user sessions are extraordinarily long and that users have multiple sessions per day if you can’t monetize that and make it profitable. You’re arguing for the “eyeball” economy, and we saw how that turned out the first time around. Funny how quickly we forget.

    MySpace is apparently charging $0.10 CPM for banner ads. That’s horrible and indicates they have a massive supply of inventory that they can’t sell unless they practically give it away. There’s a lot of hype around the advertising potential on these sites, and I don’t disagree with the potential, but when you look at the silly “Congratulations! You’ve won our hourly prize” banner ads and Google text ads on these sites, you have to start questioning why none of the big agencies are advertising and paying the premiums that lots of people believe these sites should and will command.

    Incidentally, I have been involved in the operation of traditional message board sites in several very “sticky” verticals for the past 6 years. On paper, the demographics look incredible and the “stickiness” of the sites is mind-boggling. But getting top brands/advertisers and keeping them is extremely difficult. I’ve had candid conversations with some of our advertisers about this and the issues they have apply to the social networking sites:

    Users on these sites are adept at mentally blocking out the ads. They are there to socialize, not to be marketed to. It doesn’t matter if you have the perfect audience and that users visit the site like it’s Mecca if they ignore the ads. Advertisers want ROI (or some proof of effective branding) and when they don’t get it, their willingness to pay a premium goes away or they drop their spend with you entirely.

    User-created content is a risky proposition for most brands. The idea that their ad could be displayed alongside questionable content that they don’t want their brand associated with is a huge factor in their ad purchasing. On our message boards, we had to recruit a 24/7 moderation team and set up procedures to reduce abusive users from signing up in the first place. I read somewhere that MySpace has 220 full-time employees, most of which have customer support and moderation duties. The site has 80+ million people. You just can’t police it effectively with those numbers. Go on to any of these sites and you’ll find they’re filled with sleezy stuff (sexually explicit content, hate speech, glorification of vice, etc.). Then ask an ad buyer at a major brand whether he or she is going to want to advertise when there’s a very high probability their ad is going to be displayed alongside that stuff at least some of the time.

    Bottom line: if you’re going to run a successful site and business that’s based on user-created content, it requires work. The sites I’m involved with are profitable, but they’re not the US mint. You need to actively manage and maintain community sites if you want to have any level of quality. I haven’t seen any evidence that you can do it profitably with tens of millions of users. Maybe MySpace, Bebo, and the rest of the herd will prove me wrong, but one look at the content on there now shows they have a lot of work to do.

    As I said in my earlier post, News Corp. will have to show shareholders that the $580 million purchase of MySpace can have a major positive impact on the company’s bottom line. MySpace certainly gets a lot of press (both good and bad) but it’s all about dollars and cents. Until MySpace has an impact on the News Corp. bottom line that is proportional with a buyout of this magnitude, the jury is out and the clock is ticking.

12. street
    

    July 10th, 2006 at 11:16 pm

    retardo.. idioto.. dumbo…

    and if they get more than a billiano.. Then call me stupido…

13. John Smith
    

    July 10th, 2006 at 11:38 pm

    Bebo grew as a result of SPAM. Don’t believe me, just type in “bebo spam” in google and see what you get.

    $500 mil for a smart spammer. Now i’ve seen it all.

14. Miguel
    

    July 10th, 2006 at 11:56 pm

    NFW

15. mikkom
    

    July 11th, 2006 at 12:19 am

    It seems so much like bubble 1.0 all over again.

16. thomodachi
    

    July 11th, 2006 at 12:20 am

    Just another media blunt to test out their market price is what I say.

17. zJack
    

    July 11th, 2006 at 12:51 am

    I wish people would stop talking about the new bubble (wasn’t that passe about 6 months ago). When we start seeing things like Furl doing IPOs, or your grandma dumping her retirement into Zoomr then you can say we’ve returned to the 90s. Hell, I’d say we haven’t even reached the tech fever that was the late 80s.

18. abcd
    

    July 11th, 2006 at 1:33 am

    word on the street: facebook is holding out for $2b not because of the VCs, but because zuckerberg owns > 50% of the company and wants to be the youngest american billionaire. (i.e. > $2b / 2)

    more power to him if he pulls it off.

19. Iain Tait
    

    July 11th, 2006 at 1:40 am

    Not sure if it’s worth a billion dollars. But the fact that over 1/2 of Skype’s UK traffic comes from Bebo shows that it’s worth something…

    More here

    http://weblogs.hitwise.com/hea.....kyp_1.html

20. Noah
    

    July 11th, 2006 at 3:30 am

    I feel sad for these companies being plagued with offers of half a billion dollars. How annoying it must be. After all, a few years ago they were probably still bringing their lunches to work in a paper bag (like me). It seems so completely reasonable to assume that your relatively overnight success of a social networking website will last so far into the future and not drop off at all, despite the increasingly crowded nature of the market.

    *end sarcasm*

    Really now… I have so many different interests that I will never have time for… why not just say “hey, 500 million… let me check the “build a sweet social networking website” off my to-do list and get started on my next 500 million dollar project.” I think these people are losing perspective.

21. John
    

    July 11th, 2006 at 4:38 am

    http://www.bebo.com/OurBlogVie.....1329945303
    ‘Bebo Bands’ has launched. It’s bebo’s answer to myspace’s music feature. A bit late and not so many features, but its finally music intergration into bebo.

22. Sam Davyson
    

    July 11th, 2006 at 5:24 am

    Hmm I am not sure. I think they may have made a bit of a mistake with this one, but who are we to comment? They will have considered it for sure and probably made the right decision on the basis of the growth that they can see. It is certainly a huge site. Yes it is smaller than MySpace but it is still massive.

23. PJ at Knowing Art
    

    July 11th, 2006 at 7:33 am

    Is this why BT blocked Myspace in the UK?

24. Randall
    

    July 11th, 2006 at 7:35 am

    $550m for Bebo? Take the money and run.

    I hope Facebook’s Zuckerberg chokes on the $5m offer he winds up with in 2 years.

    Remember Excite? Kozmo? Pets.com?

    Sell it. Build something new or retire.

25. SD_Chris
    

    July 11th, 2006 at 7:42 am

    Didn’t Tribes.net sell for $50 million and not $5???

26. BlogReader
    

    July 11th, 2006 at 8:17 am

    Devin A high school student can develop a social networking application with all the same features so in terms of technology there is very little of value and the barrier to entry in this space is non-existant.

    This space is littered with half-assed attempts at making a social networking site. The difference between one that succeeds and one that doesn’t isn’t technology, but branding and execution.

27. danny
    

    July 11th, 2006 at 8:23 am

    Man…what I can do with 500 mil………. It is official the people at both Bebo and Facebook are smoking crack!

28. susan a
    

    July 11th, 2006 at 8:28 am

    On Alexa — Friendster — and Orkut (!) are on the move. http://www.alexa.com/data/deta.....ndster.com

    Orkut especially. Now #18.

29. Brian Balfour
    

    July 11th, 2006 at 8:35 am

    I agree that it was probably smart to hold out. Bebo has definitely not reached their pick and this offer is similar in price to number of members ratio as the myspace acquisition. Bebo knows its going to be growing rapidly over the next 6 months similar to what Myspace did. How much would myspace go for now? A lot more then the original $600 million acquisition.

    SN’s such as goingon.com and peopleaggregator.com are the future of social networking, however the mass audiences are still interested in the current format of social networks such as bebo.

    My thoughts…Bebo should hold out for another 4 - 6 months…then sell sell sell.

30. Chris Lake
    

    July 11th, 2006 at 9:19 am

    It ain’t true folks… not according to senior people at BT:
    http://www.e-consultancy.com/n.....umped.html

31. dirk mcgrit
    

    July 11th, 2006 at 9:25 am

    Smart to hold out because bebo has not reached their peak of what people think they should be worth? That’s plain retarded. If you are talking about value it’s a 2 way street, what someone pays for them that company will expect to get back over some reasonable period of time. Lets start the discussion there, who cares how much news corp paid for myspace as a ratio of members, it’s only a good deal if news corp. gets some of their money back. I have no clue how much bebo is actually earning, and neither do 99% of the people commenting, so there is no educated way to say how much they are worth.

32. dirk mcgrit
    

    July 11th, 2006 at 9:29 am

    “Our BT source said: “We can state categorically that BT has not had any discussions with, or made any approach to, Bebo. We’re not sure where this rumour came from.”

    It also makes us wonder exactly where the rumour came from, and perhaps more importantly, why it started in the first place.”

    Could this be a reaction to the tribe.net purchase rumors of a $5MM from those with some vested interest in keeping valution talk about social networks in the stratosphere???

33. Michael Arrington
    

    July 11th, 2006 at 9:37 am

    Chris - that is…very…interesting. Someone’s not telling the truth here, which is always a whole new story. I’m digging.

34. Chris Lake
    

    July 11th, 2006 at 10:00 am

    Me too mate, let’s see if we can find that elusive source ; )

    Fun and games…

35. mr lux
    

    July 11th, 2006 at 10:02 am

    if bebo is on a steep upward climb in value, it seems fairly logical to me to reject a bid reflecting current value.

36. jw
    

    July 11th, 2006 at 11:06 am

    I agree with mr lux and Brian Balfour. I think it is right for them to hold out.

    IMHO:
    It is often easy for people who never have had the same level of success to criticize and analyze a deal like this. None of us know the actual REAL traffic numbers, REAL revenue numbers (tho I am 90% sure that bebo is profitable, feel free to prove me wong Devin :-), so our opinions are just that.

    As for the $0.10 cpm for myspace ads… That is most likely a general RON cpm. There will no doubt be higher CPMs once you start to add some target parameters.

    The only way to tell if bebo is doing the right thing by refusing the offer is to see how they execute and grow in the future. I believe that valuation for companies like Bebo have not yet hit the “bubble” status that so many of you are suggesting.

    Question:
    Have any of you watched your kid or someone in their early adult or late teen years use these SN?

    I really suggest you do. I have seen it, and it is crazy the amount of time they can spend on there. YES I am arguing eye balls. After all, it is media.

37. Shirish
    

    July 11th, 2006 at 11:09 am

    Here is investing 101.

    Do not wait for the peak. Sell while you do not see the peak (you will get premium valuation). Once the peak is visible the valuation will come tumbling down.

    But alas, our memory is so short - on the other hand that makes the game so interesting.

38. George Nimeh
    

    July 11th, 2006 at 11:33 am

    While blogging this same story, I listed more than 10 potential buyers without even trying.

    http://www.i-boy.com/weblog/20.....-bebo.html

    One thing is certain, hindsight will either make Birch and Maloney look like visionaries or fools.

    ~G~

39. Raymond
    

    July 11th, 2006 at 12:29 pm

    @jw

    I have kids and have watched them on MySpace. What’s interesting is that they have never clicked on a banner ad and seem to pay no attention to them. If the 10 cents CPM report is correct that’s a hefty discount to run-of-network ads on other sites. I believe RON ads typically run at $2-5 at most other sites. I have yet to see any really targeted advertising on MySpace. Where are these target parameters you’re talking about or am I just of the demographic that is ideal for “Hit the Monkey to Win!” ads?

    Why would a profitable company take $15 million from VCs and dilute ownership further especially when they could cash out at $550 million? Answer: they’re not profitable. If they’re as profitable as you claim to be, they would take out a loan for expansion capital and wouldn’t need $15 million.

    @dirk mcgrit

    Agree with your two way street comment. That’s something the “bubbleheads” seem to forget. If you buy a company for $550 million, $550 million is now your breakeven point. Given the fickle nature of these audiences and the fact that many new competitors are easily gaining traction, it seems like a risky proposition.

40. fireIsiah
    

    July 11th, 2006 at 12:45 pm

    bebo. has anyone ever heard of it? do you know anyone who’s a member? and they turn down half a billion?

    bbbuuuubbbblllleeeeeee !!!!

41. jw
    

    July 11th, 2006 at 12:46 pm

    Raymond, if only you know the reasons why I would say they are profitable… (I don’t say that lightly.)

    Oh yeah, by the way guys. The more I think about this whole thing, the more I think it’s a hoax…

42. roger66
    

    July 11th, 2006 at 1:48 pm

    What I’d like to know is - why on earth are these companies being bought out? How could they possibly have something to offer just through their adsense revenue. I heard some crazy rumor that jazznoodle was going to get bought out too! Is it numbers or just election buzz that’s feeding its rise?

43. Big Perm
    

    July 11th, 2006 at 2:44 pm

    Bebo… take the money before everyone finds out that social networking sucks

44. fireIsiah
    

    July 11th, 2006 at 4:07 pm

    The hidden problem that no one is addressing is that the VCs may be making all the decisions. I bet that if it is up to the founders, they would sell and buy their private islands…but their VC buddies may be calling the shots. Dark side of getting funding.

    …or this could all be B.S. and there’s no 500 mill offer on the table.

45. Frodo
    

    July 11th, 2006 at 6:08 pm

    Founders of a highly profitable company takes $15 million from vulture capitalists so they can further dilute their stake. All while they’re getting the chance to cash out for half a billion dollar offers. That makes sense! Sure you’re not a Bebo shill jw?

46. michael
    

    July 11th, 2006 at 8:41 pm

    So i read somewhere bebo is actually making like 5x more per user than myspace is. All they need is a little more traffic.

47. George Nimeh
    

    July 12th, 2006 at 10:29 am

    If this story is true, it isn’t BT:
    http://www.siliconbeat.com/ent.....s_say.html

48. Amit Raman
    

    July 12th, 2006 at 11:55 am

    The price is just right. Companies like FOX or Viacom will have 25MM users that they can market video, music, ads and movies to. They have their own, dedicated pool of customers.

    Assuming that 20% of users are regular buyers, at 25MM this means 5MM regular buyers. Let’s say media companies are able to sell and additional $100 / year on entertainment, that equates to an extra $500 MM / year in revenue. Plus, the ad generation on 25MM is HUGE. I think the price is right.

49. Ian
    

    July 12th, 2006 at 3:37 pm

    Sadly (for bebo), the whole story is untrue.

    I just interviewed Michael Birch.

50. sickofscammers
    

    July 19th, 2006 at 4:56 am

    The whole thing is a total scam. We all knew it from the start. bebo. ringo. bunch of dingos poo. they should be prosecuted for the scam where they their software said “input your yahoo / google / hotmail password so we can spam all your address books, take your personal data, open you MS Money files and generally make like crackers”. No one can buy this company, as anyone who did would have to stop doing nasty things like that and the business would collapse. They would also have to remove all the kiddie-self-pr0n, hate speach, defamation and fraud. Basically that appears to be 90% of the site. Its also a share fraud, and, frankly, SEC should act pronto.