Posted on Friday, 18th June 2010 by James Martin
AOL (AOL)
Lately, AOL hasn’t had the greatest reputation. About six months ago, the company split off from Time Warner (TWX: Charts, News, Offers), a merger that had been highly anticipated in 2000, but one many have now called the worst merger ever. AOL was hugely successful in the earlier days of the Internet, but now seems to be having trouble keeping up with the growth and current trends. Two years ago, AOL took a risk in purchasing a social-networking site known as Bebo, and yesterday, it was announced that AOL had sold Bebo off to an investment group. Did this deal work out in AOL’s favor, or was it just another disappointment?
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Unfortunately for AOL, this risk they took two years ago was a major failure. The company purchased Bebo in May of 2008, paying a stunning $850 million for the company. Bebo had been founded three years prior to that, and was a social networking site which hoped to compete with Facebook. However, Bebo never took off in the same way that Facebook did. While Facebook’s user base has skyrocketed, jumping to over 500 million visitors in April, Bebo’s user base has continued to drop off, counting only 12.6 million visitors in April.
Not only has AOL not been able to make Bebo a success, they also were not able to arrange for a decent purchase price. AOL had announced in April that they would be looking to sell the company, since they wouldn’t be able to spend the money to turn the company around themselves, since they had lost so much ground to their major competitors. Neither AOL nor the purchaser (Criterion Capital Partners LLC) have officially confirmed the purchase price, but it has been reported that the firm is paying less than $10 million for Bebo, which works out to less than 2% of AOL’s original purchase price. Criterion is known to be strong at turning companies around, and they have stated that the site is “an attractive media platform”, but they’ve also mentioned that they may just let the site “run the course that it’s on” and hopefully pull in a little money from ad revenue from the site’s shrinking audience.
So it’s clear that this deal did not work out in AOL’s favor. Many have said that the purchase of Bebo was one of the company’s riskiest moves, and AOL founder Steve Case has tweeted that the situation “doesn’t seem like a winning strategy.” AOL isn’t recouping much of its money, although they will receive a decent tax deduction. And although it doesn’t look like Facebook has anything to worry about right now, situations like this are good reminders that sites that appear to have a lot of promise may one day fall to the wayside. If today’s major sites aren’t able to give their users what they want, they might one day find themselves as worthless as Bebo has become.
AOL Commentary:
AOL embarks on a hiring binge – AOL just announced that they will be looking to hire hundreds more journalists in the upcoming year.
Happy 25th Birthday AOL – America Online turned 25 last month, and it’s interesting to see how the company has changed over the years.
MTV Serves as Model for AOL Site – AOL has just launched a music platform which they hope will appeal to the teenage crowd.
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