Quitting a Losing Game

The days appear to be numbered for Bebo at AOL (NYSE: AOL  ) .

In an internal memo first circulated by PaidContent.org, the struggling online giant reveals its hopes of unloading its fading social-networking site.

AOL may have paid $850 million for Bebo -- before AOL was spun off by Time Warner (NYSE: TWX  ) -- but it will likely have to settle for far less today. Assuming it can even smoke out a buyer.

It's easy to see why AOL wants out of Bebo. Outside of Facebook, social networking has been a tough gig. Even the mighty Google (Nasdaq: GOOG  ) hasn't been able to make its Orkut site relevant outside of select international markets, and AOL is now run by a seasoned Google executive.

Given the network effect of social sites, it's not a surprise to see just one site grow at the expense of others. Folks will gravitate to where the friends, family members, and colleagues are hanging out -- and abandon the rest.

It's a pity for the non-Facebook sites, because social networking appears to be fertile soil for paid search at the lucrative local level.

Is anyone other than Facebook really growing? Twitter's a speedster, but it's more of a microblogging site with limited interaction. Genealogy specialist Ancestry.com (Nasdaq: ACOM  ) was able to pull off an IPO last year, but the premium subscription site lures users who want to get more in touch with their family tree roots than chat with living family members.

Bebo's shrinking usage will make it difficult to land a buyer, just as AOL's fading access business makes it tricky to unload on United Online (Nasdaq: UNTD  ) or Earthlink (Nasdaq: ELNK  ) . Why buy a site that will likely be smaller -- and cheaper -- a few months later?

This doesn't mean that Bebo is worthless. However, the stigma of buying a site in decline may thin out the bidding pool of publicly traded buyers. Private equity firms and venture capitalists may pick at its bones if the price is right, believing that they have the magical elixir to turn the social networking site around.

If they are history scholars, they may realize that the odds are against them. Has there ever been a social networking site that bounced back into prominence after peaking? Bobbing for Bebo won't be as fun as it sounds.

Google is a Motley Fool Rule Breakers pick. If you want to bob for growth stock recommendation, now is the time to check it out with a free 30-day trial subscription offer.

Longtime Fool contributor Rick Munarriz wonders why some social networking sites thrive only in certain geographical areas, but he's fairly sure it's all about the network effect. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1145473, ~/Articles/ArticleHandler.aspx, 9/1/2014 3:56:12 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement