San Francisco — Barely two years after AOL acquired the social network site Bebo for a whopping US$850 million, the company has now decided to either sell or shut down the ailing service by the end of next month, as the company scuttles a stalled effort to capitalize on demand for online social networking, according to company spokeswoman Tricia Primrose.
“Bebo, unfortunately, is a business that has been declining and, as a result, would require considerable investment in order to compete in the competitive social networking space,” executive vice president for AOL Ventures Jon Brod wrote in an internal email Tuesday.
“AOL is not in a position at this moment to further contribute funds and support Bebo in pursuing a turnaround in social networking,” Brod wrote.
When AOL acquired Bebo in March, 2008, AOL, it was then a division of Time Warner Inc.; AOL snapped Bebo from its British co-founders, Michael and Xochi Birch, as part of an effort to attract new users and advertisers. At the time, Bebo had attracted a vast following in Britain and Australia, and was seen as a potential rival to more popular social networking services such as Facebook Inc., but it has since struggled to gain its footing in the United States.
“It is evident that social networking is a space with heavy competition, and where scale defines success,” the memorandum said.
The company further stated that it would follow up on the scheme it described in May 2009, “leveraging core capabilities and scale in quality content, premium advertising and consumer applications.”
It plans to complete its “review” process by the end of May, which indicates interest has already been received from potential buyers. However, an AOL spokesperson insisted the process of searching for a buyer had only begun today, following this afternoon’s announcement.
However, according to statistics from comScore Inc., Bebo drew in 12.8 million unique visitors in February, down 45% from the same period last year. Meanwhile the number of visitors to Facebook grew 68% over the same period, comScore said.
As AOL continues to revamp its business strategy to focus on advertising revenue, rather than selling access to the Internet, it has had to evaluate where best to place its bets, said Augie Ray, a senior analyst with Forrester Research who focuses on social media.
“You need page views to drive advertising, and Bebo simply has not been able to retain an audience,” Ray said. “The decision was probably very simple for them.”
AOL has continually emphasized its objective to focus on building quality content, and to pull premium advertisers to underwrite it. Typically, social networks have had difficulty appealing ad spend from big brands, and – as the company notes in its statement – require large scale and reach to monetize successfully.
“We have not witnessed many companies shutter their social networking enterprises,” Ray said. “But ultimately, companies have had to adjust their business models for the reality for today.”
AOL’s ICQ instant messaging tool, another service seen as non-essential, has reportedly drawn bids from potential suitors including Russia-based ProfMedia and Digital Sky Technologies, and China-based Tencent Holdings Ltd.
Brod’s email about Bebo was sent in anticipation of a related public filing with Companies House, the U.K.’s government registry.