March 12, 2008 10:55 AM PDT

Can Bebo revive AOL?

Posted by Dan Farber

When the media talks about the Web giants these days, it's Google, Yahoo, Microsoft, MySpace.com, and Facebook, with AOL as an afterthought.

Since its merger with Time Warner in 2001, AOL has been an odd duck among the swans, trumped by competitors despite its more than 100 million U.S. users, according to ComScore (below).

(Credit: ComScore Media Metrix)

Speaking at a Bear Stearns Media Conference on Monday, Time Warner CEO Jeff Bewkes said AOL's ad revenue is flat, advertising has slowed, and the shift from paid subscriptions to free membership has cut into search ad revenue.

Bewkes also he would consider making an acquisition to strengthen AOL's market position.

"Would something added to AOL, or AOL added to something else, make it stronger and more valuable? We can't rule it out, and we wouldn't," Bewkes said at the event. "It's our obligation to make sure AOL gets into whatever configuration that makes it the strongest and most valuable."

I guess he knew something we didn't. The company on Thursday announced its acquisition of social network Bebo, which has 40 million members (mostly in the United Kingdom, Ireland, New Zealand, and the United States) for $850 million in cash.

AOL can now claim to have 80 million "socially networked" members by adding its AIM and ICQ instant-messaging users. AOL's spin is that Bebo helps the company in growing internationally and among a younger demographic.

Bebo does give AOL a credible social network, which already has some integration with AIM and ICQ, and lots of ad inventory. In the U.K., Bebo and AOL rank about the same in unique users, according to ComScore.

(Credit: ComScore)

The combination of AOL and Bebo, which has adopted both Google's OpenSocial and the Facebook platform for its application developers, will be a much stronger competitor versus the other major players in the social-networking arena. At this point, Google and Microsoft lack a strong social network, though Microsoft is in bed with Facebook, and Google is expected to bring its Orkut social network, which rules in Brazil, to OpenSocial.

AOL has been investing heavily to go more international and revive its brand, which has struggled to move from Web 1.0 to 2.0.

The big question is whether the addition of Bebo to AOL will equal 2 or 3. If AOL can manage to integrate Bebo into the fabric of the AOL portal experience, such as with AIM and what's left of AOL mail users, it could be a 3. But it won't do much to slow down MySpace and Facebook.