Critical List: Bebo

Set up in 1995, Bebo (short for 'blog early, blog often') was the first social networking site to capture the imagination of the UK's young internet-savvy generation.

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Last Updated: 31 Aug 2010

Luckily for founders Xochi and Michael Birch, it caught the attention of some of the world's biggest investors too, and they soon sold the site that they had started with just ú8k to AOL for $850m (ú560m). But, unfortunately for its new owner, this coincided with the arrival of new kid on the block Facebook, which soon put Bebo well and truly in the shade.

Danger signs Just a year after AOL acquired Bebo, the industry was awash with gossip that the site was up for sale again, and at a bargain-bucket rate. Rumour-mongers were given yet more ammunition when Jeff Bewkes, CEO of Time Warner (which spun off AOL in December 2009), publicly admitted that the deal had been overpriced. And its faults don't stop there, either: many analysts say the blame lies squarely with Bebo's acquirer, as it didn't invest enough in the site to keep it at the top of the fast-moving social network market. While Facebook's popularity boomed as it spawned myriad applications and games to keep its fans entertained, Bebo's plummeted, with UK user numbers dwindling from 5.8 million in 2008 to 1.8 million this year. Profits vanished with the users, too - down from ú2.6m in the UK in 2008 to a loss of ú1.1m in May 2009.

Prognosis When a strongly worded document was leaked from within AOL's start-up acquisition and investment department in April announcing that Bebo was to be shut down or sold in 2010, few were surprised. The site may continue to be relatively popular in the UK, but it has struggled to break into the US market. AOL has ended up with egg on its face - suddenly, the ú145m that ITV lost on Friends Reunited (bought for ú170m in 2005 and sold for ú25m in 2010) doesn't look so embarrassing. AOL will be lucky to get a tenth of what it paid for Bebo - assuming it can find a buyer.

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