Buying a fledgling social networking site is the quickest way for a giant corporation to gain credibility with a youthful audience, but it is also the fastest way to waste a few hundred million pounds.
US internet giant AOL snapped up Bebo, the UK equivalent of Facebook, for $800m two years ago, only to announce last week that it was embarking on a “strategic review” that is likely to lead to its closure. At the time of the deal in March 2008, which made millionaires of Bebo’s founders Michael Birch, a Briton, and his Californian wife, Xochi, AOL described it as “a game-changing acquisition” that “puts us in a leading position in social media”. That lead evaporated remarkably quickly.
Back then, Bebo had a global audience of between 7.1 million (according to online ratings company Nielsen) and 40 million (said Bebo). Most agreed it was the third largest social networking site in the UK behind Facebook and MySpace, although it had struggled to gain traction in the US. According to figures from ComScore, Bebo’s global unique visitors in February 2010 totalled 12.8 million, down 45% on February 2009. Facebook had 462 million visitors, MySpace nearly 110 million, and Twitter 69.5 million.
What went wrong? Being brought by a global corporation tarnished the cooler-than-thou image of an independent start-up that was particularly popular in school playgrounds. Aggressive expansion by Facebook also played a part. Like most social networking sites, Bebo also benefited from a novelty factor that can disappear as quickly as it emerges. News Corp, the media conglomerate controlled by Rupert Murdoch, bought MySpace for $580m in 2005, only to watch its appeal diminish along with its value as it loaded the site with adverts.
ITV took a gamble on another UK start up, Friends Reunited, paying £120m in the same year, only to sell it at a huge loss last year. Company insiders criticise AOL for failing to invest in Bebo, and point out that an acquisition by a corporate giant tends to stifle creativity. That may hide a more uncomfortable truth, however, which can make a mockery of the savviest owners. Social networking sites are businesses based on the fickle behaviour of internet users, who are free to move on to the next site when a competitor emerges and are offered few reasons to stick with their existing site. In that sense, Bebo was a fad.
It may not have fallen into the trap of letting naked commercialisation scare its teenage users away, but nor did it evolve in the manner that many of its competitors did. Facebook is used by adults as well as children. Much of Twitter’s power, influence – and likely longevity – derives from the fact it has become a professional tool, rather than an online outlet for gossip posted by its users.
Start-ups rarely fare well when they are taken under the wing of a bureaucratic corporate parent, and Bebo may also have suffered by hitching its wagon to AOL, a business that has itself seen better days. It is owned by Time Warner, an American media giant that owns CNN, Time magazine and a host of other assets, but the $162bn deal that brought AOL and Time together is now regarded as one of the most disastrous in corporate history.
Buying Bebo was an attempt to build on AOL’s status as the world’s first internet provider by bolting on a new audience, but internet users are notoriously promiscuous. For Bebo’s young users, the site turned out to be the online equivalent of a teenage crush – intense while it lasted, but it didn’t last…