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.