Bye bye Bebo

AOL Inc. will sell or shut down Bebo,
the social-networking site it acquired for $850 million two years ago in a bid
to reinvent itself by tapping into the social-networking craze.

“Bebo, unfortunately, is a
business that has been declining and, as a result, would require significant
investment in order to compete in the competitive social networking
space,” Jon Brod, executive vice president of AOL Ventures, said in a message
to employees.

“AOL is not in a position at
this time to further fund and support Bebo in pursuing a turnaround in social

AOL scooped up the social-media
site in 2008 under a previous management team when the struggling Internet company
was owned by Time Warner Inc. The deal came amid
AOL’s attempts to transform itself from a subscription-based service for
connecting to the Internet to an ad-supported media business. It represented a
bet that consumers would use social-networking sites as their prism for navigating
the web, and that advertising dollars would follow.

Several analysts at the time
questioned whether AOL overpaid for Bebo. Time Warner Chief Executive Jeff Bewkes called Bebo the “riskiest acquisition”
his company made that year.

The site never gained a foothold in
the U.S. and steadily fell behind the competition. Bebo attracted 5 million
unique U.S. visitors in February, down 12 per cent from the same period last
year, according to comScore Inc. In contrast, Facebook attracted 111.8 million
unique U.S. visitors in February; nearly double the size of its audience in
February 2009.

“We’ve known this has been a
declining asset since just beyond day one that they bought it,” says Ross
Sandler, an Internet analyst with RBC Capital Markets. “It is a sunk cost
at this point.”

AOL said it expected to decide on
Bebo’s fate by the end of May.