- The Washington Times - Friday, March 14, 2008

AOL yesterday entered the social networking business with an $850 million acquisition of Bebo.com, thus continuing its transformation from Internet pioneer to online advertising network.

The deal gives the Sterling, Va., company access to 40 million users worldwide. In the U.S., Bebo ranks a distant third behind MySpace and Facebook, but it’s the second-most popular networking site in Britain and is No. 1 in Ireland and New Zealand.

The combined reach of Bebo and AOL’s instant messaging services, ICQ and AIM, creates a “social media powerhouse,” Chief Executive Officer Randy Falco said yesterday.

AOL, a unit of Time Warner Inc., has already pumped $1 billion into acquisitions to beef up its online advertising presence, which it consolidated last fall as Platform A. The Bebo deal will allow the company to tap into the lucrative advertising market for social networking sites, which is expected to grow 75 percent this year to $2.1 billion, according to research firm EMarketer Inc.

The company that gave most Americans their first taste of the Internet has been forced to reinvent itself as cable and phone companies now dominate the Web access market. Services such as e-mail and parental controls that were once offered only to paying subscribers are now free. AOL has dumped its dial-up access business overseas and is spinning off its U.S. assets into a separate business unit for possible sale.

The shift is evident in AOL’s 2007 financial results: Total revenue fell 33 percent to $5.2 billion, which AOL attributed to a 52 percent drop in sales from Internet access subscriptions. However, revenue from advertising climbed 18 percent to $2.2 billion.

Dan Farber, CNET News editor in chief, said in a blog post that Bebo gives AOL “a credible social network, which already has some integration with AIM and ICQ, and lots of ad inventory.”

AOL competitors Google Inc. and Microsoft Corp. lack strong social networks, Mr. Farber said.

In addition to its advertising ventures, AOL has sought to make its AOL.com Web portal a general-purpose destination akin to MSN.com, with news, videos, e-mail and search capabilities.

Signifying its commitment to chasing ad dollars, AOL next month will relocate its headquarters to advertising capital New York City, where managers have already been transferred. The company has said it plans to maintain offices in Sterling, where it employs 3,000 people.

Bebo, based in San Francisco, employs about 100 people.

Executives wouldn’t comment yesterday on what the deal would mean for the partnership between Bebo and Yahoo Inc., which was announced in September. Under that agreement, Yahoo would sell the majority of Bebo’s display advertising in Britain and Ireland.

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