Parks Associates Blog

Thursday, March 13, 2008

Bebo Goes to … AOL!

Online social networking site Bebo found a new owner: Time Warner’s AOL unit. On Thursday morning, AOL announced the acquisition worth $850 million. The deal finally helps AOL land a piece of hot online property: 40 million members and about 80 million unique visitors per month. And it is a complementary deal from both a geographical perspective and a business perspective: Bebo is most popular in the U.K., Australia, and New Zealand whereas AOL’s user base is concentrated in the North America; Bebo’s audience is much younger than AOL users’ demographics so the acquisition will make AOL’s properties more attractive to advertisers. Like all major social networks, Bebo is experimenting with original video content aggregation as well as syndications from broadcast networks, a plus for an online business that increasingly relies on video to drive traffic and increase website “stickiness.” So the deal makes sense from a strategic perspective.

The risk remains in the integration area. Since AOL initiated the Platform A strategy, it has made quite a few acquisitions, but the ad unit is struggling both financially and structurally. Most recent financial data painted a slower ad revenue growth than I had expected, and senior ranks’ turnover rate is high by industry standard: the most recent departure of Curtis G. Viebranz, a senior executive in the Platform A unit, further spurred suspicion about AOL’s execution of its ad strategy. Can Bebo be quickly and smoothly integrated into AOL’s overall ad business and can all the pieces that AOL acquired start adding value to Bebo’s execution? A big question mark in my mind and AOL has to show the proof quickly.

An interesting perspective is the fact that Yahoo has reportedly intensified its talk with AOL for a possible deal in order to run away from Microsoft, but Yahoo also runs the search and banner ad business for Bebo, a deal that was struck down only six months ago. Will AOL’s purchase of Bebo spoil the talk between AOL and Yahoo, or pull them closer? We will find out soon as Yahoo’s board election and the proxy fight with Microsoft draws near.

Disclosure: the analyst owns shares of Time Warner Inc., the parent company of AOL.

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