The Sunday Times had a feature on the AOL Bebo deal this weekend. It contained the following passage:
What intrigues analysts is that Bebo looks cheap in comparison with the
valuations placed on Facebook and MySpace.
News Corp spent $580m to buy MySpace in 2005. The site is No 1 in America and
analysts value it at between $5 billion and $10 billion. Last October
Microsoft bought 1.6% of Facebook, valuing the company at $15 billion,
although analysts estimate it is worth less than that.
Jeff Lindsay, analyst at San-ford Bernstein, said that the problem with
social-network sites in general and Bebo in particular is demonstrating that
they can generate money from all those users. “One big factor is the
maturity of their advertising,” said Lindsay.
News Corp is one year into a $900m deal with Google to advertise on MySpace;
Facebook has Microsoft’s backing; but until this week Bebo didn’t have major
Lindsay said that, without that backing, growth prospects in the United States
– the world’s biggest market – look uncertain and these uncertainties are
reflected in the price.
Reading that it struck me that this deal is very different from the two other big ones we have seen in this space so far. Newscorp and Microsoft did deals with Myspace and Facebook in the hope that the ties with a social network would benefit them. The knowledge transfer and operational benefits were expected to flow more to the acquirer than the target.
If Lindsay has it correctly the Bebo AOL deal is the other way round – and that makes sense to me. AOL is a US/global company and needs to operate US/global properties – and Bebo is not that large in America.
The intriguing question therefore is how AOL will go about leveraging it’s undoubted power in the US market to help Bebo take share from Facebook and Myspace. The folks at AOL are smart and they will know that communities are fragile things. They will need to manage this deal very differently to the host of advertising related acquisitions they have made in the last year where the strategy has been to integrate pretty rapidly.
The early word from buy.at is that post deal integration is going really well and I’m sure AOL will figure it out. At first blush you would think the fact that the Birch’s are leaving Bebo will make their task more difficult, but reading that Sunday Times article and others it looks like Joanna Shields may have been running the company for a while anyway.
Their success will have a significant impact on the way other media companies evaluate their synergy cases when considering acquisitions of other social networks.