BUSINESS BLOGS
BUSINESS BLOGS
category: business
13 Mar 2008

Most media companies will look for micro deals in 2008 to complete their product lines, but today, Time Warner went against the grain by taking out its checkbook and acquiring European-centric social networking powerhouse Bebo for $850M.

Make no mistake about it, this is a sizable deal; after all, MySpace sold for $580M just three short years ago.

Tale of the Tape from Paid Content:

- Bebo.com URL bought for $8,000 in July 2005.
- Bebo.com raised $15M investment in 2006 from Benchmark’s European arm, Balderton
- Benchmark’s cut is $140M (doing the math, they owned 16.4%)

A few things worth emphasizing:

- For February 2008, Compete shows 3.5 million U.S. visitors to Bebo, 28 million to Facebook and 65 million to MySpace. So Bebo is the third-largest social networking service in the U.S. behind MySpace and Facebook, so this catapults AOL into a nice position, but time will tell if this will propel Bebo or slow them down.

- Bebo had been rumored to be on the auction block for $1B, if not more. The fact that they sold for less says something. What? I think that you are seeing financial backers want exits if there is no way for a company to be #1 or #2 in a space. As much as Bebo gets credit for their fantastic track record, there is no way to compete with Facebook’s $300M funding and MySpace’s parent, News Corp.

- Time Warner’s AOL is clearly moving away from destination (AOL) to network (Platform A + Bebo).

- Just yesterday, Time Warner CEO Jeff Bekwes said AOL was on the table. Clearly he knew this deal would be announced shortly, so this suggests that AOL is bolstering its value to others. In a way, it’s gobble or be gobbled… and AOL is both seller and buyer. Om Malik coins it better: AOL is schizophrenic!

- This reinforces the notion that for these massive new media companies, growth is in international, not US: Bebo is tops in UK, New Zealand, Ireland.

- TWX - whose stock is near 52-week lows - essentially took $850M off their balance sheet to help boost their top line (Advertising.com has been driving AOL’s revenues, so this does give Advertising.com more inventory).

- However, there is a risk here: social networking sites remain very challenging to monetize, but thankfully, AOL can leverage Tacoda’s behavioral targeting system, which they bought last year for a cool $275M.

- Bebo has a deal with Yahoo!, but since AOL owns Quigo, I presume AOL will soon swap out Yahoo!’s text ads for Quigo’s. However, Quigo usually partners with solid brands such as SI.com (also a property of TW, incidentally), I am not sure if the advertisers who turn to Quigo will really welcome social media inventory… time will tell.

- Speaking of Yahoo! - AOL has been in talks with Yahoo! about a hookup in the wake of MSFT’s unsolicited $31/share takeover bid. In some ways, this makes AOL more valuable in any merger talk with Yahoo!, but this also frustrates Yahoo! because Yahoo! was looking at buying Bebo itself (allegedly for $1B) and it was already in bed with the social networking site by representing its ad inventory. Not sure if Jerry Yang and company will see this as good news. Mind you, they’ll blame Microsoft for this, too.

Bottom line: this deal captures many of the trends we’re expecting to see in 2008:

- Go big or go home: if you are not #1 or #2, why bother? AOL knows that for it to be more valuable, it cannot be a has-been online.

Live blogging for those who cannot get enough Bebo and AOL here.

Disclosure: I own shares of Yahoo!