Analysis: Acquisition may be too late to help AOL prosper in Web 2.0 world

Bebo deal may boost online advertising efforts, but firm may be too late with social network

AOL LLC's planned acquisition of social networking site Bebo Inc. comes during AOL's quest to morph itself from an Internet service provider into a media and content company. Some industry insiders said the move may be too late to help AOL reach that goal.

Andrew Frank, an analyst at Gartner Inc. said that $850 million offer to buy Bebo -- the third-largest social networking site in the U.S. -- in some ways takes AOL back to its roots as a pioneer in user experience. "The original AOL site was a precursor to a lot of the kinds of things we see in today's social networks," he said "They were really a pioneer."

In addition, AOL's statement that it plans to use Bebo to grow its online advertising network is a sound strategy and alleviates much of the speculation that AOL parent Time Warner Inc. is looking to sell off the unit, he added.

"One of the lessons that we've been learning from folks like Microsoft and Yahoo is that while advertising and content are both important, if you're going to try to sell an advertising platform, you need to be able to seed it with a reliable source of content. That is one of the things that is driving the acquisition of content sites."

Frank did question the timing of the acquisition for AOL, saying that it may be "too little, too late" for the company. "They have some pretty hefty competition from Microsoft and Google -- it is hard to play catch-up with that," he said.

Charlene Li, an analyst at Forrester Research Inc., noted that the move makes a lot of sense for AOL, which "has been very much under the radar in many ways in the social space" while it tries to build up an advertising network.

"They feel like they need to have that audience to gain access to this brave new world of social networks," she said. "They do have a very strong product in AIM -- that is about communicating between your friends, and that in many ways is a social network as well."

Mike Masnick, president and CEO of IT research firm TechDirt Inc., said that his firm has long wondered why big online players such as AOL, Yahoo and Microsoft didn't create social networks from their instant messaging systems four or five years ago when Friendster and MySpace.com first began to gain popularity.

"Whereas most social networks had little to do once you connected, most people used instant messaging to communicate all the time," Masnick noted. "Those instant messaging systems already knew who all your 'friends' were, and it shouldn't be that hard to then take that information and convert it into a more standard social network, with instant messaging features built right in."

Now, AOL "has finally woken up" and realized this possibility, he added.

Linking AOL Instant Messenger to Bebo in a way that gets people interested may be difficult now because many people are reluctant to join yet another social network unless it provides something compelling and different than the ones they already use, Masnick noted.

"Yes, AOL should be turning AIM into a social network, but they should have done it four years ago when it still made sense," he added. "As it stands, this seems likely to go nowhere fast -- especially with the cloud over AOL's future strategy."

Copyright © 2008 IDG Communications, Inc.

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