I didn’t quite believe it when one of my most trusted sources told me that AOL was seriously considering selling Bebo, the social network it acquired for $850 million only a year ago. But I have now confirmed the rumor with three other sources intimately acquainted with the company. AOL is indeed quietly pondering a sale after watching Bebo perform much worse than it had hoped. That, combined with an advertising market buffeted by the waves of the economic downturn, means Bebo’s days at AOL could be numbered. Selling Bebo after only a year would be an astounding about-face. How did this happen?
[UPDATES: As a result of this story, more sources are coming forward. One I trust says Bebo is being pitched at $200 million. Update 2: Sources inside AOL are denying that it is exploring a sale. Bebo also denies a sale. Update 3: We have been in contact with corp communications at AOL, they say on the record: "There is no truth to this rumor." Four of our sources, including former and current Bebo insiders and a well-placed VC, say otherwise. Last December Gigam published "Is Time Warner Having Second Thoughts About Bebo?". I'm not saying Bebo is formally on the block, but I am saying that a sale is something under consideration].
My sources paint a picture of a startup which cleverly went about wooing advertising agencies, their clients, and – in the end – a media company that was prepared to jump on the social networking bandwagon during late 2007. There is absolutely no suggestion that anyone was dishonest or misrepresented the situation. But a year on it’s clear that AOL itself projected more growth onto Bebo that the network could deliver.
Here’s the scenario my sources paint as to why Bebo may now be for sale.
The story starts two years ago in January 15 2007. Bebo is riding a wave of growth and to control this and pitch the company in the right direction, founders Michael And Xochi Birch hire Joanna Shields, managing director of strategic partnerships for Google EMEA, as international President, based in London.
You have to cast your mind back to that era. Social networking was still a very new phenomenon, especially in the mainstream media. Facebook had only just opened up in the six months prior. Selling social networks as media platforms was a new field. What advertising agencies wanted was someone to explain to them, in simple terms, where the value lay. And that’s exactly what Shields did.
As one of my sources says: “Shields was extremely really good at getting the slightly dim media buying agencies to automatically tell their clients that they just had to be on Bebo.”
It would be fair to say that many advertising agencies then – and even to some extent even now – don’t have a clue about the Web.
A senior media planner at a major agency spoke to me on the condition of anonymity. She confirmed that Bebo’s 2007 offensive on the agencies was planned with military precision: “Among all the social networks that pitched to us at the time Bebo had the best packages and approach to sell to agencies. It was VERY easy to buy from them. Joanna’s approach was excellent. Her experience was evident. When they presented the packages it was presented as a one-stop shop.”
Media agencies found other social networks at the time far more complex to deal with. But “dealing with Bebo was very similar to traditional online buys. They got into agencies easily because of that. They just pitched exactly what you wanted to hear: audience, growth, traffic, costs, and branding/textlinks packages. Simple.”
By the time other social networks came calling at the agencies’ doors, Bebo had almost sown up the market.
But in particular, Bebo did very well targeting the completely Web-clueless TV planning agencies, largely responsible for buying TV shows, not running the ROI numbers on a PPC web campaign.
Bebo was pitched as a kind of new-era TV network. The creation of the Kate Modern series. The partnership with media companies. All of it was cleverly designed to pull fat, undiscriminating ad budgets out of TV agencies.
In fact, it’s almost arguable that hit Web shows like Kate Modern were created specifically to target these agencies and generate PR in the media, prior to the sale. As a media agency source tells me £100,000 is nothing in TV. “Communication planners have big budgets for this kind of TV-style buying – it’s easy to justify to clients.”
Bebo also found a way to spin off its shows to traditional TV. Bebo’s “Sofia’s Diary” drama, for instance, was acquired by Channel Five in April last year.
Thus, once the agencies had been coaxed into singing the praises of Bebo to clients, brands started to join in with the choir. The bandwagon started rolling. Bebo went on a media-savvy PR offensive the like of which has rarely been seen from a tech startup.
The rest as they say is history. Thinking Bebo was going to rank as “Facebook Mark 2″, AOL (the place where, as Jeff Jarvis famously put it, innovations go to die) Bebo was bought by AOL on March 13, 2008 for $850 million (£417m).
However, in 2009, in an advertising recession, all is not working so well. Digital agencies – not TV planners – have since found that Bebo has not been performing anywhere near the ROI level it was pitched at a year ago. Apparently the dwell time in particular is not as good as first thought, and the young demographic has not proved valuable.
Should Bebo be blamed? My agency contact thinks not. “I don’t blame Bebo as much as the agencies who don’t know how to engage with Bebo users, and made bad decisions. We are now moving away from a walled garden in social networks anyway. You don’t just have to be on one social network in the way we thought we did two years ago.”
They say: “Bebo was great at the time but now we are disappointed because socnets [social networks]are not about sending loads of traffic to a profile page. At the time it was fine, but people are now disappointed. You don’t get ‘friended’ much as a brand. It’s not just about being inside one socnet but about being everywhere.”
Furthermore, the fallout from the Bebo sale amongst the VCs who backed other social networks has also been tough to take. Although Balderton made $140m from the Bebo sale, I understand Index Ventures, which backed European social network Netlog to the tune of €5 million was not best pleased when Bebo was picked instead. Netlog has plenty of figures to match or even better Bebo, but it was Bebo that AOL picked, not Netlog. And my sources say it is largely because of the stellar performance Shields gave to the media agencies, and thus their brand clients.
And AOL has not handled Bebo well since either. Its integration of Bebo with the AIM/ICQ instant messaging platform has happened, but the advertising sales opportunity that this would imply has not been properly executed. The wider integration – Bebo’s Social InBox – only appeared in October December and is only now being sold into agencies. Meanwhile ComScore has Bebo at 22.6 million uniques worldwide in December, down from 25.8m in October.
Now, no one is saying that Bebo lied about its figures. It’s merely that the people who were singing its praises just prior to the sale – the agencies, the media and the brands – did not have any kind of handle on Bebo’s key metrics like dwell time, engagement, demographics, you name it. So effectively AOL bought it for its agency and brand relationships, not the metrics, thinking that the metrics would get sorted out by Bebo’s growth.
And let’s not forget that many thought this was a good buy for AOL. Fred Destin, a VC with Atlas, blogged that AOL was not overpaying in its acquisition of Bebo. At the time he blogged: “Bebo is well worth what it got bought for both because of its current scale and more importantly because of the incredible quality of its user engagement.” He estimated monthly revenue €6 million per month which could hit €50M per month if fully maximized, which could reach €300M. It’s fair to say those figures are not now going to be reached.
So, if Bebo is for sale, how much would it go for? My sources say AOL would be happy with two-times revenue which would be a huge reduction on the $850m AOL paid. But as one of my sources says “In those crazy days these were numbers that bared no relevance to revenue.”
A more obvious reason AOL is contemplating a Bebo sale is that its main business model has clearly switched to niche editorial sites, not social networks. Niche editorial is a direct driver for decent relationships with advertisers to offer close conversation with a core user group. It means you need to be really good at managing a portfolio of niches across a broad spectrum.
This month AOL launched MediaGlow, a formal business unit to organize the 75 sites in its publishing portfolio, which will grow to over 100 in the coming year.
The unit will join AOL’s digital-advertising offering and Platform-A and the AIM instant-messaging service, as the company’s third core business. AOL says its social-media unit will also be a part of that. But will Bebo?
My sources say not.
You know what would make this an even better story? Some statistics…you know, growth, trajectory, etc. Wasn’t part of the plan to take Bebo to the US?
http://www.quan...st.com/bebo.com
Seeing that…it seems the “social inbox” may have delivered buzz but not growth…of course, it’s an estimate but really, I have a hard time believing that Bebo is still growing at all…imho, they’re probably declining.
I cant see myself hanging about on Bebo much longer as all my friends are making the social move to Facebook permanent.
I dont like Facebook OR Bebo really that much.
MySpace is where it’s at, don’t believe the hype, MySpace is WAY better for your SEO and Brand equity.
Full speed ahead !!!
Are you a kid?
Or on drugs?
CoolestJobsOnline
http://tinyurl.com/7uj5ay
reply
This sounds like the Quaker Oats-Snapple Deal.
The bought Snapple in 1994 for $1.7B. 3 years later, it offloaded it for $300m.
Doh!
The worse thing AOL did was change it’s original format for the AOL Profile to Bebo. I think a lot of people have been disappointed by the fact that AOL should have just CONTINUED to keep the AOL PROFILE exactly the way it was. It’s not about being afraid of change so much as it is being not in control of change. At least with Myspace there is an option either Profile 1.0 or 2.0, AOL did not give its customers that luxury. They were forced (just like AOL Hometown users) to lose data and conform. And that is why Bebo preformed poorly. AOL/Time Warner? Take it from this AOL member? GO BACK TO THE OLD FORMAT! IT WORKED!! AND IF IT WORKS? DON’T FIX IT!!!!
I wonder how did AOL managed to commit such a stupidity. They have been in web,mail and ISP business for such a long time.
May be they were not social enough to have a mature thought.
This surprised you? Given their track record, I’ll be surprised when AOL does something *right*
Frankly speaking those dudes at Aol don’t understand anything about the web, they don’t just get it right. From Navigator to AOL Active Virus, now Bebo… lol. What next
For the last time, there is really no money to be made in social networks. Just a lot of traffic and hype. But what good is traffic if you cannot monetise them.
This is as bad as Excite’s purchase of Bluemountain.com back in 1999 (?)
Please feel free to disagree on my blog where I wrote more extensive view on this:
http://smartbab...armes-race.html
I disagree, after meeting so many markeitng agencies recently and internet entrepreneurs the amount of people in the last 6 month who have begun using facebook’s self servicing ad system is absolutely huge. That coupled with their insane growth, I wouldn’t be surprised when facebook go public and release there revenue figures for 08 that they have hit 500 – 750 Million or more.
People are beginning to understand how to use facebook to target people, and Mikes theory about good vs bad advertising countries doesnt pan out on self servicing ad’s since it caters to a MUCH MUCH wider audience than media buyers.
A fascinating read. It’s interesting to see what AOL has been up to lately. I’m a fan of their niche editorial strategy. I’m surprised they couldn’t find a better way to make Bebo work though.
Meanwhiles I’ve never even heard of Netlog, and just realised it’s huge. How many of these enormous social networks are there! Sheesh Kebabs!
Great post.
it does not surprise me at all, companies that bought social networks because they were growing fast were essentially buying a ponzie scheme
Companies have to focus on business models and not growth, advertising is DOA in social netoworks unless it’s super targeted and has massive scale and so far no one is coming close to solving that problem.
My 2009 prediction was a flight from growth to value, i’d appreciate your thoughts:
http://experien...growth-to-value
Mike – you are making this way more complicated than it really is. This has little to do with military like agency pitches, rather it’s due to a very basic principal of positioning and that is the ‘first mover’ principal.
Facebook is the de-facto social network for most people. It’s first in the mind. Why would someone switch to Bebo when Facebook gets the job done and all your friends are there? When a brand, product or service is first in the mind of consumers there is often little that can be done to change that. While those other things you write about did happen, they matter little to the consumer and their behavior.
dk
AOL is so adept at acquiring great brands for too much money and then watching them turn into huge heaping mounds of manure.
This goes all the way back to web 1.0: Spinner, Winamp, Compuserve, Netscape, ah…the list goes on and on.
If I were a gambling man, I’d suggest that whenever it is AOL v. the other big brand, bet on the other guy.
Surprise surprise
How about spell checking your blogs before blasting them to thousands of people. Words like: gowth, taffic, no (instead of now)….
And Gigam…lol
{seesmic_video:{”url_thumbnail”:{”value”:”http://t.seesmic.com/thumbnail/Ns8JwsbN3d_th1.jpg”}”title”:{”value”:” ”}”videoUri”:{”value”:”http://www.seesmic.com/video/KUuq5fclLV”}}}
to the layman this purchase made no sense from the beginning. americans dont want to sign up at some site named beeboe. if myspac was called beeboe it would never be what it is today. “properly positioned” personalized natural language location based domain names are more powerful than anyone can imagine.
http://www.sees...LBVaQ0sYP/watch
They would be lucky to get 1-tenth of what they paid. they would be better off if the changed the name and continued on a creating a multichannel niche portfolio of content destinations.
NetworkLocator.com – plug in.
I would tend to agree with Dave- first mover and brand building and great UI. I think that niche mobile platforms like Mocospace may do well but head to head with facebook and myspace- good luck AOL.
Who proofread this article before it went out the door. Had to stop in the middle of reading to rant.
AOL become a skill of many but a master of none, they keep on acquiring a lot of good start-up but unable to keep up the needs of community.
Nat
AOL should have tied an earnout to that deal. Stupidity/
Does AOL make small mistakes? I’m still amazed how many friends have joined facebook in the past 3 months. Great scoop Mike.
This story might be a tip of the iceberg.Same stories may leak out from other big companies as well.
Fancy that…an overhyped social media company whose valuation was puffed up by a huge hype machine that included journalists who ought to have applied some critical thinking.
What is it about social media that makes journalists (and corporate acquirers) switch their brains off?
Shocking, a social network that isn’t making money. Really, name one major social network that is turning a profit.
Netlog!
We never burned money, but have to admit that we have been quite careful in our spending.
Bebo did a great job in educating the market (both advertisers and users) in the UK and Ireland.
Social networks have a lot of untapped potential to make lives more fun and more social. There are some conditions (such as data portability, affordability of mobile data, usage of open standards, linguistic solutions, …), but for both users and for advertisers the best is yet to come!
PS: We were never approached by AOL as the article may seem to suggest. And for the avoidance of doubt: we have no intention to acquire Bebo at this moment.
Bebo was also acquired for its huge UK base. It was no 1 there, & still is.
You make it sound real gloomy. I’m sure you have seen worse integrations. Give it time.
It’s not #1 in the UK – Facebook is by miles!
What kinda nonsense analysis is this?
I think AOL should stop any Internet activity. They should recognize what they are bad at and stop doing it.
You have to think that Facebook will reduce bebo’s influence even further as more of the younger crowd move to their network.
Great deal for the Birch’s though.
This is one of the best analysis I have seen. Many thanks – very insightful. Have posted highlights on blog and linked back to main site. keep up the good work
Bebo sale? Excellent analysis from Mike Butcher .. – what happens when you confuse a social network for a TV channel ..
http://opengard...sale_-_exc.html
Fancy that…an overhyped social media company whose valuation was puffed up by a huge hype machine that included journalists who ought to have applied some critical thinking.
http://svejo.lo...rticle_id=19552
good article.
@ Joe
Bebo is no longer number 1 in the UK. Facebook is. By an absolutely huge distance. No other social network comes close.
This doesn’t surprise me. In this environmental climate making sales isn’t a horrible idea. Who knows what 2009 has in store for us.
Does not surprise me…AOL.
I think its not a surprise because facebook is the best social network on the internet. It surprises me that Bebo worth $850 million.
Even if the rumor is false, rest assured that AOL is running the operation into the ground. The bigger question is who will be held accountable for the $850MM dollar f-up. Ron, Randy, David Liu? As I recall, they were the main perpetrators. Maybe that goes to the heart of the issue with AOL – there is no accountability among senior executives. It’s like a private club for mediocre underachievers. Numbers go down, a product fails, and investments yield nothing… no problem. Just lay off some folks, re-org, shuffle some deck chairs.
On a brighter note (no pun intended), MediaGlow appears to be hitting on all cylinders. Congrats to Bill Wilson and his team.
Executives will always blame the lower echelon for their poor decision making and leadership failures. As a result, AOL employees are fired for working twice as hard and twice as many hours in an attempt to fix Randy, David, and Ron’s mess. Executives are busy staying in 5 star hotels and eating $500 dinners. Yes, a private club for mediocre underachievers.
Great post (and I don’t care about the spellings either
). 22 million uniques shouldn’t be thrown away, just researched, developed and targeted. Bebo was for the younger market anyway, ‘twixt clubpenguin and myspace/ facebook. Selling it on devalues it disproportionately.
I’ll buy it and show them!
The only thing that surprises me is that anyone in senior management at AOL still has a job. Bewkes, at Time Warner, has to be wondering if his days are numbered given:
1) the Bebo disaster which he approved (and it was a disaster from day one regardless of whether AOL sells it),
2) the plunge in the value of AOL during his watch (see Google writeoff),
3) the plunge in value of TWX during his watch
4) the much delayed spinoff of Time Warner cable 5) not to mention the inability to attract a buyer for AOL.
AOL, buying at the peak, and even then overpaying…..if anyone holds shares in TW they should be crying for blood! seriously….this was all too predictable.
congrats to the bebo founders for taking those suckers at aol to the bank.
Were you drunk when you wrote this post?
I’m happy to overlook a couple unfortunate typos, but pointing fingers at “slightly dim” or “web-clueless” TV buying agencies is an entirely shallow analysis that feels very 2003.
AOL totally doesn’t ride through this recession. Every one knows that we have to tighten our belts. But selling Bebo won’t make it easier to get through the hard time.
Seems to be that the management of Time Warner doesn’t get it? Another step for Timer Warner (its internet division) into its own grave.
And I wrote my $.02 too;
http://michaelj...r-the-recession
http://twitter.com/michaeljung
Tough market, consolidation, layoffs, going out of business. Where does it end?
Bebo’s possible outcome is the same outcome for most social networking sites if they don’t find a way to make substantial revenue outside of advertising. For example Twitter is a great social networking site but it must learn how to create revenue outside of advertising (well right now it must simply learn to create revenue). I am not saying social networking sites shouldn’t make money off advertising I am just saying revenue must come from several avenues.
AOL management will go down in history the same way Merrill Lynch and Citi mangers are…..blind believers of faith!!! Stupid is as stupid does around there for sure.
AOL is the Big Engine that couldn’t. They should have been Google, Facebook, Twitter, and all the rest, but they have made nothing but mistakes. Bebo is just one more misstep on their way over the falls.
I don’t like facebook connect and the universal password. If a scammer gets one password then he gains access to your entire internet identity. That is why walled gardens are there, to protect the identity of the user from scammers outside the wall. Once the password is compromised there is no protection provided from the sites involved. So AOL and Terry Semel were correct in media-publishing blogs. Let see Yahoo try to acquire Gawker-like blogs!
” POP “!!!! No Seriously..
Smartbabesaresexy said…
For the last time, there is really no money to be made in social networks. Just a lot of traffic and hype. But what good is traffic if you cannot monetise them.
Amen. This is the beginning of the fall for social networkings sites. It is better for humanity if they all disappear from the face of the earth. They’re useless, unproductive and time-wasting. It is useful only for those think that they’re being self-important, the suckers and naives.
They’re useless, unproductive and time-wasting.
less so than televisions, whats your point?
$850 was a huge overpayment, anybody with half a brain knew it at the time. Bebo’s only real differentiation was some integrated original programming that was working at a small scale. You didn’t need to buy a social network for nearly a billion to recreate that.
I wonder if Allen & Co. is spinning the deal a second time?
I wonder if Allen & Co. is spinning the deal a second time . . .
Another great move by aol. Their research and foresight is incredible.
3rd “core business”?
I may be wrong, but weren’t the ISP and software (or was it search) businesses, and I don’t mean AIM, still generating most of AOL’s revenue last year? Do you think the upcoming Feb 4th(?) earnings will reveal anything different?
If those are still the the main money makers ad aren’t considered “core business”, does that mean they’re getting rid of them, sell off or otherwise?
The price AOL paid for Bebo is totally unbelievable.
Who on earth will want to buy Bebo today even if it is offered at the knockdown price of $100m.
There is Facebook and MySpace and then there is nothing.
If both of these two Social Networking titans fail to make decent revenues around their huge user numbers, than how on earth can a small time player like Bebo hit the jackpot.
How can anyone even justify placing a valuation on Facebook at the $15 Billion mark. It aint worth a tenth of that price.
The same price that Google paid to acquire YouTube’s library of user generated video’s, which millions of people watch and comment on and er, thats about it.
Only Rupert Murdoch -from the school of Old Media, made a killing in purchasing a Major Web 2.0. Company.
The price he paid for MySpace was soon followed by Google unwriting an $800m Advertising Deal.
Although even today no one is really sure if that deal is dead and buried.
But maybe in some way, Rupert Murdoch failed to truly exploit the popularity of MySpace at its peak, by not using its huge Brand Name across his tried and tested Old Media Networks.
A MySpaceTV Network aimed at a new Web 2.0 Post-MTV Generation, could have earned him some huge TV Advertising bucks.
But whats really sad in all of this sorry mess, is how in 10 years, the two biggest Web Titans at that time – AOL and Yahoo have failed to truly exploit the golden opportunities that were in both of their hands.