Media Forum: Will Bebo lift AOL's fortunes?

Is AOL's social network purchase a prudent move? Alasdair Reid reports.

Brave move on AOL's part, paying £417 million in cash for Bebo, a company that's barely three years old. Especially given the fact that its 2007 revenues were barely more than £10 million. True, it claims its revenues are about to take off exponentially - but sceptics might wonder just how that's going to happen given that, although it is based in California, it has struggled to expand its presence much beyond Britain and Ireland.

Mere mortals might also worry that growth predictions are more than a little arbitrary when we stand on the brink of a recession. And that's before we get into any speculation about the underlying soundness of the business - social networking - that Bebo is in.

One thing is sure - AOL is back in the headlines. Eight years after the epoch-making deal with Time Warner that became one of the biggest disasters in corporate history, it has seemingly rediscovered the capacity to surprise.

Of course, its decision to buy Bebo makes eminent sense within its new strategic outlook - to evolve way beyond its early function as the first consumer-friendly internet service provider. But still. The speculation recently has been that a number of big media owners - including News Corporation, Google, Yahoo! and CBS - have run the rule over Bebo and opted to pass.

Clearly, it's easy to argue that their loss is AOL's gain - and, indeed, AOL's corporate machinery has been eloquent in making the case for Bebo. The line is that it's in the right sort of space, having begun to evolve beyond social networking - it has successfully created online drama content, such as KateModern, and has been looking to extend programming partnership deals with mainstream broadcasters.

And it has an audience - more than 40 million users. Last year, it began a push into major continental European markets that it hopes will soon double its user base.

So, has AOL got it right this time? Damian Blackden, the president, digital, at Omnicom Media Group EMEA, points out that Bebo's valuation seems somewhat unremarkable when viewed alongside Microsoft's payment of $240 million for 1.6 per cent of Facebook. But he says: "My main worry is that it feels a slightly incongruous pairing, like an older man hanging out with a teenage girl. I don't think Bebo's uneven (audience) distribution is a problem, though. It may not be a global brand, but then AOL isn't these days either."

On the other hand, Will Phipps, the media planning and strategy director at Profero, argues, the issue from an advertiser point of view is whether social networking is a phenomenon that can profitably be harnessed. He explains: "The research about Facebook users shows that the majority actively dislike advertisers on their network. So the onus for AOL and Bebo is to keep advertisers interested - working together to create great content that users love while helping us build interaction and loyalty with our clients' products."

But that's already starting to happen, Derek Luddem, the managing director of PHDiq, says. He adds: "Potentially, this can be very good for AOL if handled in the right way. It all comes down to whether it can be integrated with existing AOL products such as Instant Messenger and the AOL portal as a whole. You could argue that AOL is fairly family focused as a portal and that the Bebo audience is different, but I'd argue that it fits well - if it's integrated cleverly, it will fill a gap."

Robert Horler, the managing director of Diffiniti, tends to agree. He concludes: "The price for Bebo is not unreasonable compared to the recent valuations placed on other social networking sites. I think people are more interested in the power and attractiveness of the audience - but the likes of AOL, MSN and Yahoo! have a good idea about how they can monetise that audience. And the shift is starting to happen. There's no shortage of interest from advertisers or a lack of intention to do great work. The question now clearly is how AOL leverages it under one umbrella."

MAYBE - Damian Blackden, president, digital, Omnicom Media Group

"This doesn't seem a bad buy. Bebo is a credible brand among teenage audiences, but AOL will have to remember that this is a fickle audience - when users get to a certain age, they tend to leave."

MAYBE - Will Phipps, media planning and strategy director, Profero

"If AOL can push Bebo on and find the next KateModern without irritating the Bebo user base, it will see the revenues flow. If it floods the network with cheap ad inventory, people will vote with their feet."

YES - Derek Luddem, managing director, PHDiq

"On the content side, Bebo does all sorts of interesting stuff. I'm sure there can be a cross-fertilisation of ideas. If it gets it right, then Bebo can provide an interesting new backbone to what AOL does."

YES - Robert Horler, managing director, Diffiniti

"I believe this is a good acquisition. All of the major players need social networking in their armoury - and you have to put questions of revenue to one side because these sites are all technically overvalued. It bears comparison to prices paid for other social networking sites."

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