AOL to sell or shut down social networking service Bebo

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AOL confirmed Tuesday what everyone has known for a long time: R.I.P Bebo.

Two years after paying $850 million for the social networking service, Bebo is essentially worthless and AOL plans to sell it or close it. AOL expects to decide Bebo’s fate by the end of May.

“We are currently evaluating strategic alternatives with respect to Bebo, which could include a sale or shutdown of Bebo in 2010,” Jon Brod, head of AOL Ventures, local and mapping, said in a memo to AOL employees. “As we evaluate our portfolio of brands against our strategy, it is clear that social networking is a space with heavy competition, and where scale defines success. Bebo, unfortunately, is a business that has been declining and, as a result, would require significant investment in order to compete in the competitive social networking space. AOL is not in a position at this time to further fund and support Bebo in pursuing a turnaround in social networking.”

AOL gambled that it could make money in social networking in 2008 when it bought the company from husband-and-wife team Michael and Xochi Birch as part of an effort to reinvent its business and grab a greater share of online advertising.

The deal had a lot of detractors who complained that AOL overpaid for Bebo, which was popular in Europe but never quite caught on in the United States. Ultimately the service languished, falling behind competitors like Facebook. Bebo attracted 5 million unique U.S. visitors in February, down 12% from the same period a year earlier, according to comScore. Facebook boasted nearly 112 million unique U.S. visitors in February, almost double the number a year earlier.

Tech pundits began writing Bebo’s obituary. Bebo president and ex-Googler Joanna Shields left AOL (and landed at Facebook, where she’s running its sales and business development in Europe, the Middle East, and Africa). AOL wrote down much of the loss.

Now AOL, which parted ways with Time Warner four months ago, is reinventing itself as a purveyor of digital content under the leadership of ex-Google executive Tim Armstrong.

-- Jessica Guynn