For those who do not know the story, back in the heady web 2.0 days of March 2008, AOL bought a social networking company called Bebo for 850 million dollars. “So what?”, you may ask, “Facebook’s current valuation is around 14 billion.” Well yes, that is true, except there was only two slight problems. First, Bebo was not Facebook. Second, AOL is that magical place where innovation goes to die.
And that, as they say, is when the problems began. Oh, there were omens. At the time of the merger, Bebo’s growth had been flattening relative to the other social networks. Also Bebo was big in the UK, Australia and New Zealand, not the US. It also did not help that there were plenty of senior managers who were against the deal. But really, what was AOL to do? The divorce from Time Warner was imminent, AOL was late to the social, AIM pages were DOA, none of the many advertising platforms they had bought were working out. But perhaps the purchase was best summed up by BuzzMachine’s Jeff Jarvis:
The terrible irony is that if anyone should have understood community and how to support, nurture, and profit from it, AOL should have. The problem is that AOL never understood its real value. At various times, it thought it was an internet service provider and then a portal and then an ad network. But all along, AOL’s greatest asset was the community of people under its nose: millions of enthusiasts in countless niches meeting and enjoying each others’ company in forums and chat and personal pages, the platform for community that AOL created.
AOL should have been Bebo before there ever was a Bebo. It should have been the Google of people. It should have been Facebook. Instead, having killed the golden goose of its own community — one it created as the social pioneer of online — it is going to the market to buy a tin gosling.
In May 2008, AOL announced that Bebo would be at the center of a new “People Networks” division. The Social Inbox launched quietly in December 2008. I say quietly, because it was supposed to have been launched in October 2008. But the economic crunch was on, advertising revenue was down and AOL’s advertising goals were over the top. In March, 2009, there had been talk of selling Bebo for around 200 million. One year after the purchase and Bebo was down 650 million dollars. Not good.
Of course new management came in and Bebo was basically left to its own devices, which translated means “Left to die in the middle of the road”. And now, two years later, AOL is preparing a filing in the UK to alert regulators there of its plans to either sell or shut down the site. Shut down looks more like the path of least resistance, as no one is going to want to buy it, given the history.
If anything, this, along with other AOL transactions should be included in business classes at Wharton about how not to run a company.
Now Playing: Gary Jules; Michael Andrews – Trading Snakeoil for Wolftickets – Mad World [From Donnie Darko]