Thursday, March 13, 2008

WHY WOULD AOL BUY BEBO ?

AOL has just bought Bebo for $850m.

NY Times: Bebo: Randy Falco’s $850 Million Rescue Plan for AIM

This story really perplexes me.

Are they saying that with that $850m they could not build a Bebo? Isn’t that kinda their job? If not, what is AOL ?

AOL and AOL Instant Messenger in my mind, are two of the most valuable online assets out there. Mainly because they are the perfect conduit to launch new products and ideas that the network will spread and adopt if worthy.

To buy a company like this when you already have the reach and resources to do it yourselves - and I am sorry to say this - is a monumental failure in strategy and execution from people running AOL.

This is a clear signal to Jeff Bewkes to offload AOL.

From an application point of view, there is not thing that Bebo does that AOL does not do now or could not build in a month. They are simply WAY overpaying for audience. Innovation should be the main reason for AOL's being. With this move, it is clear that AOL is not an innovative company at the moment.

The alternative to forking out $850m for Bebo was that the AOL management came to Jeff Bewkes and said, “Hey, we are smart people and with the money that it would take to buy Bebo, BUT we could do this ourselves - WE are an innovative online company - ESPECIALLY because we have about 200 Billion people to leverage that come to AOL.”

Bebo started and grew right in front of AOL. Another win for the investment banks - Allen and Co. this time - in scaring big media companies with this age old pitch - "Rupert is really keen for this - we have a term sheet with them, but if you move now you could get it for $850m. They like you better."

Watch for the same thing done with Facebook soon. Didnt anyone learn anything from the AOL and Time Warner merger.

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