Is AOL's purchase of Bebo a clever competitive move, or another nail in its own coffin?

Bebo in the U.S. remains a lesser known name in the social networking scene.  Internationally, though, particularly in the United Kingdom, the network vies for the number one spot.  Its interface looks somewhat akin to a cleaner MySpace layout.  It features user-generated TV show content, such as the popular video blog "Kate Modern" and content from MTV and CBS featured on an open digital platform.

The site has garnered 40 million total members.  This is relatively strong, though still lagging behind Facebook, which at last counts had 67 million members, and MySpace, which in late 2006 hit 106 million members and has been growing since.  The site does average a healthy 33 minutes per visit, one of the best totals on the internet, and an indicator of potential ad revenue.

AOL meanwhile appears to be slowly dying.  The company’s online and internet services are being split up into separate entities and possibly sold by owner Time Warner.  However, AOL with Time Warner's approval reached a final deal to purchase Bebo for $850M USD.  AOL hopes desperately that with the site and instant messaging program, which remains popular, it can turn the corner and return to growth.  It thinks that it will be able to increase Bebo's user base to around 80 million by tying it to its AIM messaging network.

AOL CEO Randy Falco states, "I've said many times that my vision for AOL is that we become a global, market-leading ad-supported digital media company. Today, we're taking a major step toward realizing this ambition."

The merger is a friendly one and Bebo President Joanna Shields will be staying on as Bebo's leader.  Falco states in his open letter to his company that he believes that the move puts AOL in a leading position in social networking.

Whether the move can salvage the train wreck that is AOL remains to be seen.  Last October, AOL cut 20 percent of its workforce.  It also killed the historically significant Netscape browser, which once was king of the browser market.  AOL had previously spent billions over the last couple years acquiring and Tacoda, with little gains. 

Many point out that social networks are not as profitable as believed.  Facebook CEO Mark Zuckerberg recently stated that his company was "close to breaking even" -- in other words, it wasn't profitable.  Meanwhile Google, which has a $900M USD ad deal with MySpace, is unhappy with MySpace's ad-revenue, which was well below expectations.

"If they're going to pirate somebody, we want it to be us rather than somebody else." -- Microsoft Business Group President Jeff Raikes
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