Investment Firm Buys AOL's Bebo

San Francisco Chronicle

 

AOL Inc. paid $850 million two years ago for Bebo Inc., but on Thursday unloaded the slumping San Francisco social-networking firm in a deal reportedly worth less than $10 million.

Criterion Capital Partners LLC, a Los Angeles private investment firm that specializes in turnarounds, takes over a company that is more popular outside of the United States, but by far is overshadowed by social-networking rivals Facebook, MySpace and Twitter.

Exact terms were not disclosed, but AOL chief executive officer Tim Armstrong said in a memo to employees that the deal for AOL "will also create a meaningful tax deduction, which should allow us to more effectively manage our tax strategy."

Bebo has 30 employees working in offices in the same South of Market building that houses Twitter Inc. Bebo also has three workers in the United Kingdom. Its headquarters will remain in San Francisco.

In April, Bebo's future didn't look bright after AOL said it would either sell or shut Bebo down.

AOL was still part of Time Warner Inc. when it bought Bebo in May 2008 for $850 million, although Time Warner chief executive officer Jeff Bewkes has later said the company "may have overpaid."

At the time, Bebo was particularly popular in the United Kingdom, but Bebo's fortunes waned as Facebook Inc. overtook MySpace as the world's most dominant social network.

According to ComScore Inc., Bebo had 12.6 million unique visitors worldwide in April, down from 26.9 million one year before. Bebo's U.S. traffic dropped to 4.9 million visitors in April 2010, from 10.2 million the previous April.

Meanwhile, traffic to Palo Alto's Facebook zoomed from 307.1 million worldwide and 67.5 million in the United States in April 2009 to 519 million worldwide and 121.8 million in the United States in the same month this year, according to comScore.

AOL said Bebo also has members in Ireland, Australia, New Zealand, Canada, Poland, France, Germany, Italy, Spain, India, Pakistan and the Netherlands.

Criterion Capital Managing Partner Adam Levin led the acquisition, joined by business strategist Paul Abramowitz and Web entrepreneur Richard Hecker, a news release said.

"The young, highly active user base, revenue history, presence in countries throughout the world and solid technical infrastructure make it an attractive media platform both as a stand-alone entity and in the context of our broader investment objectives," Levin said in a statement.

But AOL founder Steve Case, who is no longer with the company, used his Twitter account to voice his skepticism about the deal.

"AOL buying Bebo for $850 million and then selling 2 years later for $10 million doesn't seem like a winning strategy," Case said in the tweet.

Augie Ray, a social-media analyst with Forrester Research, said that "at this point, it does not seem Bebo has any serious chance to compete as an all-purpose social network."

However, he said, Bebo's best chance could be to concentrate on a niche audience, in the same way MySpace "is focusing more on social sharing around entertainment."

Or Criterion could "simply let Bebo run the course that it's on. It still receives several million visitors per month, and even though Bebo continues to shrink, those visitors still represent ad revenue," he said.

AOL Looks to Sell or Shut Down Bebo

SAN FRANCISCO (AP) - The struggling Internet company AOL Inc. plans to sell or shut down the online community Bebo nearly two years after buying it for $850 million in an expansion of its social-networking ambitions.

In an e-mail to employees Tuesday, Jon Brod, who runs AOL's startup acquisition and investment unit, AOL Ventures, said Bebo would need a "significant investment" to remain competitive.

Although Bebo has been in the shadow of rivals such as Facebook, it has been strong in foreign markets, including Britain. AOL wanted to tap that strength abroad to drive traffic to AOL's other free, ad-supported Web sites, especially internationally, while leveraging AOL's instant-messaging communities, AIM and ICQ, to try to grow Bebo in the United States.

But Bebo's audience has instead been slipping in the U.S. According to comScore Inc., Bebo had 5.1 million U.S. users in February, down from 5.8 million a year earlier and a sliver of the 210 million that Facebook has.

Brod said AOL will look for potential buyers and plans to finish a strategic evaluation by the end of May.

The $850 million in cash that AOL paid for San Francisco-based Bebo in May 2008 made it AOL's largest deal since it bought MapQuest for $1 billion in 2000 (not counting AOL's $106 billion purchase of Time Warner in 2001). At the time, AOL was still joined with Time Warner Inc., but it separated from the media conglomerate late last year.

Since spinning off from Time Warner, AOL has sold one property: affiliate marketing business Buy.at, which it sold in March to Digital Window Ltd. for an undisclosed price. Digital Window runs a network of affiliate marketing sites, which steer customers to e-commerce sites in exchange for a cut of sales.

AOL, a pioneer in the dial-up Internet business during the '90s, has been trying to streamline and concentrate on rebuilding itself as a content and advertising business. It runs dozens of Web sites, including popular tech blog Engadget and personal finance site WalletPop.

Clayton Moran, an analyst at The Benchmark Co., said the price AOL paid for Bebo was questioned from the start.

"It made a lot of industry watchers scratch their heads," Moran said. "At this point they probably would admit they overpaid for it and now they're just cleaning it up."

He said that if AOL does sell Bebo, it would likely fetch a fraction of its original purchase price.

Shares of New York-based AOL rose 25 cents, or 1 percent, to close Tuesday at $26.39.