On 13 March 2008, AOL announced an agreement to acquire the social networking site Bebo for $850 million in cash.
This acquisition shows that investments in the social networking space remain vibrant, despite indications of consumers' "social network fatigue." Formerly explosive growth rates have slowed and monetization remains a challenge. But to the extent a social site is a platform, it has value. Bebo is an “in-between” property: more platform than some, but not as much as others.
The acquisition shows that second-tier networking sites need to find synergy with complementary large players such as AOL that can combine social networking with instant messaging and advertising engines. AOL will need to execute rapidly and flawlessly to gain maximum value from this investment, given the popularity of Facebook, MySpace, LinkedIn and other competitors.
The purchase shows a "valuation gap" between Bebo and Facebook. Considering metrics such as monthly unique visitors and page views, Facebook's metrics range from three to 10 times larger than Bebo's. If Facebook were valued only in proportion to these metrics, it would have a value between $2.5 billion and $8 billion — far short of the $15 billion established with Microsoft's November 2007 investment.
There may be several reasons for this valuation gap:
This deal adds a source of advertising inventory to AOL's Platform-A suite of online advertising products. Bebo has cultivated relationships with major media companies and has positioned itself as a media-oriented social network (in contrast to Facebook, which is more focused on applications and personal communication). This positioning will appeal to brand advertisers concerned about social media's advertising contexts.
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