Talk about coming out of nowhere. This morning, AOL announced it acquired the social network Bebo.com for $850 million–the most money ever paid for a social networking site (if you don’t count YouTube).
I actually think is a pretty smart strategic bet–though it comes with its share of risks. This is AOL’s boldest move yet as it shifts from selling Internet access to an advertising-based business model on the open Web. It has already spent more than $1 billion scooping up online ad firms such as Quigo, TACODA and Third Screen Media. And it recently appointed the head of Advertising.com, Lynda Clarizio, to run AOL’s broader ad-network group, Platform A. But this puts a large stake in the ground that AOL intends to be a leading player in the global social media market.
It’s also a good tactical move. As Microsoft and Yahoo! do their mating dance, AOL can use the distraction of a merger to steal a beat on its rivals in the online ad market. Lord knows AOL will need it–as Google just closed its acquisition of DoubleClick.
In fact, this deal could make AOL the most popular Web site on the Internet. Right now, AOL claimed about 109 million unique visitors, making it the fourth largest Web property, after Yahoo! (138M), Google Sites (135M) and Microsoft Sites (119M). Add in Bebo.com’s 40 million worldwide users and that puts AOL on the top of the heap.
“Bebo is the perfect complement to AOL’s personal communications network and puts us in a leading position in social media,” said Randy Falco, Chairman and CEO, AOL. “What drew us to Bebo was its substantial and fast-growing worldwide user-base, its vision of a truly social web, and the monetization opportunities that leverage Platform-A across our combined global audience. This positions us to offer advertisers even greater reach and marketers significant insights into the desires and needs of consumers.”
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Sure, this deal gives AOL scale. And Bebo’s growth will likely pick up as it “will be featured prominently in AOL’s international expansion efforts after the deal is closed,” according to the press release. AOL is in the midst of a big global push right now. Over the last year, AOL has launched 17 international web sites, and it has plans to expand to 30 countries outside the U.S. by the end of 2008, says today’s release.
But the advertising model for social networks is not fully baked. Growth rates on these networks are slowing. The ads suffer from very low click-through rates compared to other parts of the Web. And the current enthusiasm for advertising on social networks may be exaggerated by guaranteed ad deals and hopeful experimentation. Like MySpace and Facebook, AOL must now figure out how to crack the code of social network advertising. That is the Holy Grail of the Internet now. And AOL just announced it is part of the chase.
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