Ending a failed attempt to capitalize on the social-networking craze, AOL Inc. is close to selling its social-networking site Bebo to a private investment firm at a fire-sale price, according to people familiar with the matter.
AOL is in final negotiations to sell Bebo for a small fraction of the $850 million it paid for the site two years ago—the latest example of a hot Internet property that faded in popularity before figuring out how to make money.
The buyer is Criterion Capital Partners LLC of Studio City, Calif., according to a person familiar with the matter. The small investment firm, which specializes in turning around companies with revenue between $3 million and $30 million, has been actively pursuing technology and media acquisitions, this person said. A deal could be announced as soon as Thursday.Exact terms of the deal couldn’t be learned, although one person said it was “an exceptionally uninspiring number” with almost total “value destruction.”
“Bebo is a challenged asset at best,” said Ross Sandler, and Internet analyst with RBC Capital Markets. “It is not an asset that is going to get AOL anywhere.”
Bebo’s plummeting value shows the difficulty of predicting consumers’ fickle preferences on the Web.
An AOL spokeswoman declined to comment. Adam Levin, a Criterion partner, declined to comment.
The Bebo acquisition was made when AOL, then owned by Time Warner Inc., was under a previous executive team. The deal was part of a broader plan to transform AOL’s business from a subscription-based service for connecting to the Internet to an ad-supported media business. It represented a bet that consumers would flock to social-networking sites, and that ad dollars would follow.
From the get-go, analysts questioned whether AOL overpaid for Bebo. Time Warner Chief Executive Jeff Bewkes called Bebo the “riskiest acquisition” his company made that year.
The divestiture comes just six months after AOL separated from Time Warner. AOL is now in the midst of executing its strategy to evolve into a top creator of news, information, entertainment and other digital content.
That transition is shaky. In the most recent quarter, AOL’s revenue dropped 23% to $664.3 million, with advertising revenue plunging 19%.
Bebo, which was popular in Europe, never gained much traction in the U.S. It had 5 million unique U.S. visitors in May, down 44% from the same period last year, according to comScore Inc. In contrast, Facebook attracted 130.4 million unique U.S. visitors.
AOL said in April that it was evaluating whether to sell or shut down the site.
“Bebo, unfortunately, is a business that has been declining and, as a result, would require significant investment in order to compete in the competitive social networking space,” Jon Brod, executive vice president of AOL Ventures, wrote in a message to employees last April. “AOL is not in a position at this time to further fund and support Bebo in pursuing a turnaround in social networking.”
Cashing in on social-networking sites has proven tough. Ad revenue and traffic continue to fall at MySpace, the social-networking site that News Corp. acquired for $580 million in 2005. (News Corp. also owns The Wall Street Journal.)
Despite the low price tag, AOL is likely to recognize some tax benefits by marking down the value of its Bebo acquisition, RBC Capital Markets’ Mr. Sandler said.
AOL has been selling off other assets that don’t fit with its new focus, such as the ICQ instant- messaging service and digital ad firm Buy.at, which was acquired for $125 million in 2008 and sold for about $17 million.