Less than a year ago, AOL acquired Bebo for $850m in cash in what is today still one of only a handful of major Web 2.0 acquisitions.
Our resident skeptic, Drama 2.0, criticized the deal and called the suggestion that AOL may have overpaid for the popular social network the “understatement of the year“.
While $850m did look like a rich valuation given Bebo’s revenue figures (estimated to be around $20m in 2007), AOL’s interest in the company was understandable. Even if social networks have proven difficult to make money from, there’s no doubt that they represent a new sort of ‘portal‘ online and without one, AOL almost certainly felt like it was falling behind in the battle to stay relevant. With Bebo, AOL acquired a property with over 20m worldwide unique visitors per month and massive popularity in key markets such as the UK.
But thanks to the economic downturn and contracting marketing budgets, AOL’s purchase does look quite different today than it did in 2008. And according to Mike Butcher, editor of TechCrunch UK, AOL is thinking that too. He is reporting that AOL is exploring the sale of Bebo, potentially for far less than the company paid for the social networking upstart. One of his sources even claims that Bebo is being pitched for just over a quarter of what it was purchased for – $200 million.
Both AOL and Bebo employees are denying Butcher’s report and some are questioning it but he insists that multiple sources he considers reliable are telling him the same thing – a sale is being looked at closely.
While only time will tell what really is taking place behind the scenes, Butcher’s post is interesting for more than the sale rumor. In it, he details Bebo’s rise and how it became such an attractive property to AOL.
In short, he attributes much of Bebo’s success to its ability to sell media agencies and brands on the virtues of its service and what it could do for them.
Butcher explains that when Bebo hired Joanna Shields, formerly Google EMEA’s managing director of strategic partnerships, it had acquired someone capable of demystifying social network ad buying; Shields was able to create packages media buyers understood – deals that resembled traditional online buys.
According to one anonymous agency source quoted by Butcher:
Among all the social networks that pitched to us at the time Bebo had the best
packages and approach to sell to agencies. It was VERY easy to buy from them.
Joanna’s approach was excellent. Her experience was evident. When they presented
the packages it was presented as a one-stop shop.
While Butcher (perhaps fairly) describes many of the media agencies and brands that Bebo would sell to as being “clueless“, I think Bebo’s success in selling to them highlights the fact that packaging has a lot to do with successfully selling advertising in a new medium. The right packaging gets a sale, the wrong packaging doesn’t. It’s that simple and it’s something all online publishers who sell advertising should keep in mind.
Of course, packaging alone can only get you so far, which seems to be the key takeaway from Butcher’s post and the harsh lesson that AOL may be learning. Butcher writes:
Digital agencies – not TV planners – have since found that Bebo has not been
performing anywhere near the ROI level it was pitched at a year ago. Apparently
the dwell time in particular is not as good as first thought, and the young
demographic has not proved valuable.
He also notes that strategies around social networks have evolved and thus investing heavily in a single social network (like Bebo) doesn’t make sense given the trend of more ‘open‘ platforms that provide wider distribution.
Where this leaves Bebo and AOL going forward is anyone’s guess. If AOL does look to sell, it will be yet another blow to the company’s position in the marketplace. If it doesn’t, it will clearly have some work to do in building the company into a long-term business. Neither option looks especially compelling in this economy.