$850MM for Bebo???

So we all saw the news a week ago. AOL decided to buy social networking site Bebo for $850MM. But for most US marketers, Bebo is in the mental category of the decidedly second tier. $850MM is a lot of green for second tier.

Let’s take a look at the whys of this purchase.

Start with AOL. Remember AOL? They probably got you online. They told you “You’ve Got Mail!” and you loved hearing it, until vIaGrA aS lOw aS $3 a pIlL started filling your box. There was that several month period when you couldn’t get on to save your life because they over grew. There were the ubiquitous CDs in the mail. There were the people that found something to do with those CDs. And there was the it's impossible to cancel cancellation process.

AOLwas the walled garden that got such a giant share of marketing dollars in the 90s that some companies didn’t buy anything else. They made companies sign multiyear multimillion dollar deals. Because they could. You would have too.

Time Warner paid more for AOL in the 1990s than all of the African economies put together. Wait, that may not be true. But you get the picture.

But then things began to change. Like all of the dial-up based companies, they had a great deal of difficulty switching to broadband. It was a math problem. Dial-up service was, for an ISP, more or less pure profit. The consumer paid the phone bill, the ISP provided some numbers to get online, and pretty much pocketed the rest. $23.95 a month times 30 million members times 12 = $8.622Billion. Not bad.

Now AOL had horrendous churn, as did most of the dial up services. I think the number was 6 to 9% PER MONTH. Hence the CDs in the mail. It takes a lot of effort to replace hundreds of thousands of members a month. But then, AOL was making more money as well, because they had so many sponsors and were able to force marketing activities onto members at will.

My Machiavellian side had a favorite such app, the “welcome screen” that popped up a direct response offer that you had to read and close before doing anything else. I worked for a software company at the time, and we bought it three times, and sold over 130,000 $40 software packages. It was TV style marketing in the digital era. Forced viewing. Of course as a consumer it was exasperating. But there you go.

And it doesn’t get any more euphemistic than calling a billboard ad a welcome screen.

Broadband is decidedly NOT as profitable for the old order ISPs. That’s because the connection is provided via DSL or cable, and the companies that operate those services aren’t dumb. They get your $30 or $40 or in some parts of the country $60 a month, and pocket the lion’s share. The old order ISPs had and in some cases still have partnerships with the ISPs, but the rev share is lopsided against them. And who can blame Comcast or ATT for recognizing the value of what they've got?

AOL tried offering a content-centric broadband service – it was something like $10 a month, and offered exclusive content and the like. It wasn't a connection charge. It was a content charge. It didn’t set the World on fire by AOL’s historical standards – I suspect that for most people $60 a month is quite enough to be shelling out for Internet. But any initiaitive on the scale of an AOL offering is big by the standards of most companies.

More recently AOL divided itself in two. They have a connectivity side and an advertising side. AOL now operates a free portal at AOL.com and offers free email and other services, including the IM that you probably use. Advertising is very lucrative of course.

Their connectivity side still offers users access, but now to its free portal as opposed to the walled garden. The ad side sells the ads on AOL.com as well as other sites like its TMZ subsidiary and MapQuest.

AOL.com is worth a visit if you haven't been lately. Look familiar? Yep. You could swap the AOL at the top with Yahoo and not notice a difference. But My.AOL.com is pretty nice. Have a look by registering. You can do it with an existing non AOL mailing address. And AOL search might as well have a rip mark from where the company took the Google logo off and swapped it for the running man.

You can see the company struggling – they are part of Time Warner and thus need to generate big dollars and share. Time Warner doesn’t play fourth place well. They don’t like it a bit.

So now they are entering the social media space in a big way with the purchase of Bebo. ACTUALLY, THAT'S NOT TRUE. AOL actually pioneered social media. Practically invented it. It's just that they lost that lead, like their lead in so many other areas, over the past few years.

You probably first chatted in an AOL chatroom. Most people did.

BTW, Bebo is NOT a second tier site. At least not everywhere. 40% of its users come from the UK, where it is the king of the space. And Ireland, with about 3.5 Million inhabitants, has almost as many members as the US, which has roughly 300 million inhabitants. Bebo is also strong in Australia and New Zealand, and even launched a Polish version which is doing rather well.

Clearly this is a global play. According to Alexa, Bebo is the number 5 site in Ireland, number 7 in the New Zealand, number 10 in the UK, and number 14 in Australia. And if your curious, number 160 in the US.

So Bebo must be pretty good.

And it is. I like it. It offers a more freedom aesthetically than Facebook, and a lot more apps and such than MySpace. A series of compelling channels easily port video and other conent to your page. And here’s the rub: they do it effortlessly. I have no doubt that you can do all this on FaceBook, but it isn’t this simple.

Skins let you decorate your page but avoid the garish ugliness of your typical user created MySpace pages. Blogging facility is yummy.

In short, the user experience is quite good. For an American like me, it just needs more activity. What’s most interesting to me about this social space is how leaders can be also rans in months, and second tier can become dominant is just as little time.

I suggest you watch this user created video about Bebo, made by a member in Ireland. If for no other reason than to see how passionate the users are.


Watch More Videos Uploaded by bebo.com/jane.white8

Will it be a good investment? I dunno. I have no difficulty looking at the fundamentals of a brick and mortar business and making a decent prediction. But in a market as fickle as social media, it’s hard to say. What is plain is that AOL needs to do something big to get back in the big leagues of social. And paying $850MM for Bebo is certainly a big initiative.

There is a slash and burn article about AOL in April's Fast Company. Which makes me bullish about AOL and its abiity to reinvent itself and be a leader again. Why? Because the CW in digital is almost always extreme. And completely incorrect 50% of the time.

Bebo is indeed a big initiative. So were the acquisitions of Advertising.com and Tacoda. The company is clearly in the process of reinvesting itself. This is going to be a very interesting process to watch.

Thanks for reading, and don’t forget to write.