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AOL sells social networking site Bebo to L.A. private equity firm

June 17, 2010 | 10:43 am

"With this talk about Bebo, I decided to see if I could remember my login for it. ... It's still there! Like some kind of time capsule."

That was the epitaph written on Twitter by Ben Peers, a graphic-design student in London, in response to the news Thursday that, after buying Bebo for $850 million two years ago, AOL had unloaded its failed experiment with social networking to Criterion Capital Partners, a private equity fund in Studio City.

Armstrong The price was not disclosed, but it is believed to be for a fraction of what AOL paid for it before Bebo was overshadowed by the meteoric rise of Facebook, making it nearly impossible to turn the once popular hangout into a moneymaker. AOL bought Bebo when it was owned by Time Warner Inc., but split from Time Warner six months ago. AOL was not alone in finding it difficult to cash in on social networking. News Corp.’s MySpace has also struggled with falling ad revenue and traffic.

Bebo, which launched in 2005 and gained millions of users, mostly in Europe, was supposed to be a game-changer for AOL, driving traffic to its other Web properties and fueling advertising sales. It didn’t work out that way. A new executive team at AOL decided to scrap it instead. The Bebo sale had been in the works for months, and AOL made the plan official in April.

From the moment that AOL bought Bebo, analysts questioned whether it had overpaid. Even Steve Case, the founder of AOL who engineered its disastrous $164-billion acquisition by Time Warner in 2000, took a shot at AOL on Twitter on Thursday. "AOL buying Bebo for $850 million and then selling two years later for $10 million doesn’t seem like a winning strategy," he wrote.

AOL is in the midst of a new strategy to become a central hub for news, information and entertainment and has been selling assets that don't mesh. AOL CEO Tim Armstrong said in a note to employees: "This sale is important for Bebo's users and for AOL. The deal will allow Bebo's users to remain within the social platform that they know and love, while enabling a new owner to bring new possibilities and experiences to bear. Criterion Capital Partners are specialists in facilitating growth plans and turnarounds and are well placed to drive Bebo's effort to strengthen its foothold within the highly competitive social networking arena."

He also noted that AOL would receive a "meaningful tax deduction."

In a news release, Criterion Capital Partners managing partner Adam Levin said Bebo would retain its San Francisco headquarters.

"The young, highly active user base, revenue history, presence in countries throughout the world and solid technical infrastructure make it an attractive media platform both as a standalone entity and in the context of our broader investment objectives," he said.

Criterion Capital Partners specializes in turning around companies and has been pursuing technology and media deals.

-- Jessica Guynn

Photo: AOL CEO Tim Armstrong at TechCrunch Disrupt

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