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March 13, 2008

AOL buys Bebo: What it means for the future of social networks

AOL announced that it would buy social networking site Bebo for $850 million. I have several points of view on what it means, and I've summarized some of the key ones below.

  • Future direction of social networks. In many ways, I think this deal represents how social networks will develop in the future. That's because as a stand-alone social network, Bebo had no chance of competing against big boys like MySpace and Facebook. But as an integrated part of the larger AOL content and ad network, it has amazing potential to play a role in how social networks develop. With the $850 million acquisition of social networking site Bebo, AOL is finally showing its hand -- a plan and way to integrate the disparate assets and acquisitions its been quietly building over the past year.

The foundation of my premise is that social networks will be like air, integrated into everything that we do. Let's start with AIM and ICQ, in the case especially for AIM, leading instant messaging platforms. Most social networking sites already have IM-like capabilities built into them, but the reverse isn't true. And yet, the buddy list of services like AIM reflect very well a key part of my social graph -- the people with whom I communicate with in a very intimate, frequent manner.

AIM introduced AIM Pages a few years ago, which was a lightweight approach to having a profile attached to an AIM screenname. It didn't go over well and I agree with Saul Hansell/NYTimes that this could be an opportunity to bring social networking into AIM and AOL in general.

The potential is that Bebo members' social graphs and activities are expressed and connected to instant messaging, and that IM use is reflected in the nature and tenor of the relationships within Bebo, e.g. if I frequently IM someone, then that relationship is very strong and should be reflected in my Bebo experience if that friend is also there. 

  • Valuation of social networks. As Stacey Higgenbotham/GigaOM  points out, the $850 million price comes out to about $21.25 for each of Bebo's 40 million members. That's a bargain compared to the $27.62 per user price News Corp paid for MySpace back in July 2005. Excepting Facebook's $15 billion inferred pricing thanks to Microsoft's strategic investment (which puts it at roughly $300/user!), we're starting to see a rough valuation for today's social networks.

Will this start a frenzy of acquisitions in the space? I believe so, but not necessarily at this valuation. That's because there's tremendous downward pressure on valuation because of the unproven business model, namely advertising. We're in the trough right now, because while there's tremendous consumer uptake of social networking sites, marketers still haven't figured out how to tap into all of that energy and enthusiasm.

That's why it took so long for Bebo to find a buyer, and also likely why other sites like LinkedIn, Hi5, and Friendster haven't gone yet. My prediction -- we'll see smaller, niche social networks focused on a specific group like Black Planet (by BET), or interest area like Flixster (by NetFlix) or iLike (by iTunes/Apple) get snatched up by companies interested in those areas. They have a clear, focused way to engage a specific social group or go deep into an area of passion -- both great ways to get the attention of marketers.

  • Multiple open platform support. I've always been impressed that Bebo has been able to sit in the middle between the two giants, MySpace and Facebook. It has the entertainment, self-expression aspects of MySpace but also the communication and application features of Facebook. And although Bebo was one of the core members of OpenSocial when it was announced, when it launched its own open applications platform in Dec 2007, it made sure that Facebook applications would also work on it.

This willingness to craft a middle road between these two behemoths had been a necessity as  Bebo is a far smaller player in the space. But going forward, I believe it will be a strategic advantage for AOL. That's because it will make AOL much more willing to open up its own site, services, and platform to anyone who wants to tap into it -- and more importantly, to go out into any social networks that would have it.

AOL has already organized its advertising assets, led by Platform A, into a formidable ad network that can serve any site, not just AOL's network of content sites. Look for AOL to be a part of this "opening up" of social networks, by sheer force of it having millions of users.

What do you think? Does AOL with Bebo have a chance at shaping the integration of social networks into more traditional Web sites and services? Or was this simply an opportunistic acquisition that AOL is not in a position to truly leverage? I'd love to know your thoughts, either in comments or via email at cli at forrester dot com.

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Comments

Search Engine Optimization Journal

$850 for Bebo? Seems a bit high. Not sure that will do much for AOL at this point. AOL will never be what they used to be.

Paul Chaney

Charlene, to answer your question, yes, I think AOL's acquisition does portend a future where social media integrates more seamlessly with traditional Web sites. On a somewhat smaller scale, look at what happened with Fast Company as yet another example. I wouldn't be surprised if Marketing Profs took a similar step. It makes perfect sense too.

I do wonder if bebo will be the next socnet du jour. Already, after only a few months, adult users of Facebook are moving on in droves to Twitter as the preferred app. (While college kids like my son are perfectly happy to continue their Facebook activities unabated. I'm not sure many of them paid much attention to all the uproar in fact.) So, will bebo be the place where we next all land? Wouldn't surprise me in the least.

alan p

Even if you believe the 40m users are *all* actives, at $21 /user per annum you have to believe - at a CPM of $1, which is very high for a SocNet - that you can get 21,000 impressions per user per annum - ie c 60 visits per user per day on average.

Michael J. Pratt

While I'm not about to question the purchase price (it's always been hard to play that game when someone (AOL) desperately needs to make moves to survive, a few things give me pause about this deal. AOL seems to have a magic "spammy" hand with whatever they touch. Yes AIM has a zillion users, but what they really have are a zillion screen names who use other clients. I'd be willing to bet you use a client other than the AIM one. Why? Because AOL cna't even build one that doesn't resemble some cheap, un-elegant piece of software that begs users to find an alternative. It's why they are constantly re-inventing their home page. It's also why the only people who gravitate to them are those who completely don't get the web (maybe that's still a viable strategy) The people I know that stlll haven't thrown away their AOL email address all admit they hate the AOL email client/interface. My point is...let's pray that AOL isn't allowed to even see the Bebo underlying code or it's over. If they remain arms length and take advantage of Ad.com's reach, they they might make it.

Jay Deragon

News Corp buys MySpace. AOL buys Bebo. Microsoft takes a stake in Facebook. Microsoft is taking a run at Yahoo, Google makes a play as well. Yahoo was rumored to taking a run at AOL. News Corp bought Wall Street Journal. Google bought YouTube and the flurry of acquisitions continue. The Big are all aiming to get BIGGER but do you ever ask yourself why?

When you consider the evaluations of these acquisitions you also must ask yourself why. Charlene Li - Josh Bernoff write: "As Stacey Higgenbotham/GigaOM points out, the $850 million price comes out to about $21.25 for each of Bebo's 40 million members. That's a bargain compared to the $27.62 per user price News Corp paid for MySpace back in July 2005. Excepting Facebook's $15 billion inferred pricing thanks to Microsoft's strategic investment (which puts it at roughly $300/user!), we're starting to see a rough valuation for today's social networks."

"Will this start a frenzy of acquisitions in the space? I believe so, but not necessarily at this valuation. That's because there's tremendous downward pressure on valuation because of the unproven business model, namely advertising. We're in the trough right now, because while there's tremendous consumer uptake of social networking sites, marketers still haven't figured out how to tap into all of that energy and enthusiasm."

So What is Motivating the Big to Get BIGGER?

Consider the following and think beyond today's environment.

The social web is changing rapidly and with each change innovators and early adopter users are gaining more power, presence and pull. However when we use the term "users" we must put this into context. As of November 2007 there was 1,262,032,697 worldwide users of the internet out of a population of 6,606,970,166 representing close to 20% of the world population using the internet. Now of the 20% using the internet roughly half, or 600 million, use some form of "Web 2.0".

Using Geoffrey Moore's technology adoption curve the roughly 600 million users of "Web 2.0" could be categorized as follows:
Innovators: 10% or 60 million could be considered as those actively and aggressively learning and applying the "new tools of the trade" and creating new markets, new commerce and leading edge innovative thinking.
Early Adopters: 15% or 90 million active participates follow the innovators after hearing the value created by the Innovators
Early Majority: 25% or 150 million are semi active and less informed but waiting for solid evidence of value
Late Majority: 25% of another 150 million infrequent participants waiting for numerous case studies proving the claims of value
Laggard: 25% or another 150 million may have a profile one one network but don't see or are aware of advancing technology or any value in using it regularly.
Then there is the other 600 million people on the internet but yet to be aware of or use Web 2.0. The total collective mesh or people represent significant commerce, just consider Internet transactions now total close to $2 trillion a year and growing 24% per year! In addition Global Internet ad spending will grew by 28.2 percent in 2007 representing $24.5 billion and $31.3 billion next year. It will hit $42.7 billion in 2009.

So the BIG understand the dynamics of the internet, both now and in the future, as well as the nature of human behavior. Web 2.0 and beyond will bring new markets created and facilitated by the innovators whom are followed by the early adopters. However, the early majority, late majority and laggards will migrate to large "portals" that make use of the web easy, simple and attractive to the larger audience of "part time users". These "part time users" will generate significant revenue from the multitude of product and service offerings targeted at the audience with intelligent software agents that search the users store house of data contained and manipulated within these portals.

The BIG know the power and economics of the internet. They know a large percent of the population simply wants someone else to lead them into the future and make the future easier for them to adapt and converse. Whether one user represents $21 or $300 in valuation today is a mute point for the BIG. Given the dynamics of human behavior, the advances in technology, the growth of the web and the trillions in commerce it represents the BIGGER the BIG get the BIGGER slice of the TRILLIONS of dollars flowing through their "network" which is supported by the BILLIONS of dollars from advertising revenue.

So we wonder why the BIG want to be BIGGER. It is simply a game of economics, the larger the audience the larger the commerce and ad revenue. The BIG don't want a relationship, they want your money. If the people think relationships matter then the future of the web, and all the related commerce, will create significant shifts but it will take time......maybe.

What say you?

Jeremy Lundberg - DLC Solutions

This will be very interesting to watch play out as Time Warner and Yahoo! reportedly are very interested in a merger. I heard an excellent analysis on "CNET's Buzz Out Loud" podcast of what such a deal would mean for Yahoo!, TimeWarner, and AOL as a combined force to compete against Google. Time will tell whether all of the players could actually play well together as a combined entity as being one company does not always translate into success.

Fortunehotels account in Hi5.com

While hi5 maintains its strong hold in Central America, it faces tough competition in Asia from many social networking sites. Hi5.com comes in first ten ranking in Alexa.com. You can see ranking of Fortune Park Hotels Ltd in http://www.alexa.com/data/details/traffic_details/fortunehotels.in Alexa.

Dinu2008D

I communicate with in a very intimate, frequent manner.
I think valuation for today's social networks.


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