The acquisition of Bebo.com by Time Warner's AOL, seems to say that AOL is going to stay under the Time Warner banner. Over the last year or so, many people felt it was going to be spun off for sure from Warner once Jeff Bewkes took over the reins of the company. This move may contradict that idea. Why buy Bebo if you're going to get rid of AOL? It wouldn't seem to make any sense.
With ad sales slowing over the last year for AOL, and advertisers gravitating more toward social networks and other niche sites, this is a move by AOL to shore up its advertising model, and expand to a younger audience. Ad price pressures from social networks have made this a necessary move.
While Bebo doesn't approach the size of its social networking competitors like MySpace (NYSE: NWS-A) or Facebook, they still aren't a tiny Internet company either, as they drew 22 million unique visitors in January from around the world. Bebo is more widely known in Europe than it is in the U.S. also, which gives it a lot of opportunity to grow if it can be marketed successfully here.
Some think the price tag of $850 million was steep, as other media companies declined to acquire Bebo, which has been on the market for several months. But considering the migration of ad dollars to the Internet, and the fact that it's going to continue to do that for years ahead, this is definitely a long-term play by AOL.
The answer to the question of why did they acquire Bebo, is that web portals have declined in revenue from various Internet competitors. Price pressures, especially from social networks, have driven down the price of ads, and caused revenue to decline.
It looks like this is a trend that will continue, so AOL and Time Warner (NYSE: TWX) had to do something to strengthen their ad model to line up with those realities, otherwise declining growth in ad revenue would be the ongoing story for the company.
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