AOL To Buy Bebo for $850 Million

AOL is taking a major step into the social networking world, announcing plans to acquire Bebo for $850 million...even as Time Warner considered spinning out AOL.

AOL is looking to make itself relevant in the age of social networking, announcing today it will be acquiring social networking site Bebo for somme $850 million in cash. Although Bebo doesn’t have as large a presence in the U.S. as MySpace or Facebook, London-based Bebo boasts more than 40 million users worldwide and is the leading social networking site in the UK, Ireland, and New Zealand.

A major push into the social networking world is the latest move in AOL’s broad transition from a dial-up service offering a walled-garden approach to content to an online advertising giant that offers free content and service to attract users. The companies have apparently been working on the deal for the last six months.

“Bebo is the perfect complement to AOL’s personal communications network and puts us in a leading position in social media,” said Randy Falco, Chairman and CEO, AOL. “What drew us to Bebo was its substantial and fast-growing worldwide user-base, its vision of a truly social web, and the monetization opportunities that leverage Platform-A across our combined global audience. This positions us to offer advertisers even greater reach and marketers significant insights into the desires and needs of consumers.”

After the acquisition, Bebo president Joanna Shields will continue to run Bebo, and will report to AOL’s president and COO, Ron Grant.

Among social networking sites, Bebo is generally considered to have highly engaged users, with members worldwide spending an average of 33 minutes a day on the site. The service was also among the first to produce its own content, co-producing KateModern, which the company paradoxically touts as the “most successful TV show on the Web.”

Despite a number of acquisitions and strategic moves designed to put AOL at the top of the online advertising game, industry watchers generally agree AOL’s efforts are not working out as well as its investors—or parent company Time Warner—had hoped, and speculate the company may find itself on the auction block soon. Time Warner CEO Jeff Bewkes has expressed some lukewarm optimism about AOL’s future, but acknowledged the business’s weakness and indicated he would be open to the right deal if it came along. At the same time, Disney CEO Robert Iger indicates his company would not be interested in acquiring AOL.