Many senior AOL (TWX) managers did not want to buy social-networking site Bebo, sources tell us. Among the concerns, they did not (and do not) believe Bebo will hit the revenue and profit targets used to justify the $850 million purchase price.
(AOL bought Bebo last week. After analysing the combination, we and other analysts concluded that the acquisition did not make sense).
Among the Bebo concerns held by some AOL senior managers, our sources say, were the following:
- An inability for AOL to monetise more social-networking inventory. According to our sources, AOL’s Advertising.com already cannot monetise all the MySpace (NWS) and Facebook inventory it has available.
- Flattening traffic growth at Bebo, which contributes to a sense that AOL is buying it at the peak.
- A 3X difference between the revenue assumptions used to justify the deal to Time Warner’s corporate team and the revenue assumptions some AOL senior managers thought were reasonable.
- Belief that the Bebo founders would bolt the moment the check cleared.
According to our sources, the Bebo deal was championed within AOL primarily by AOL’s COO Ron Grant (above right) and President Randy Falco (above left). Our sources believe that Ron, at least, was aware that several senior AOL managers were against the deal and that, as the deal progressed, these managers were intentionally kept out of the Bebo loop. Our sources believe that, under standard AOL operating procedure, these managers would have been asked to bless the Bebo financial projections before they were presented to Time Warner’s M&A team for approval. Our sources say that such procedures were not followed in this case. (Kara Swisher reported a similar story last week).
Among those not consulted on the Bebo deal who would ordinarily have been, our sources say, include executives at:
- Advertising.com (responsible for monetizing Bebo).
- Platform A (ditto)
- Userplane (community communications platform)
AOL spokesperson Tricia Primrose vigorously disputes that AOL’s standard procedures were not followed on the Bebo transaction: “It is ludicrous to suggest that our CEO and COO went out of process on this deal,” she said.
Our sources believe that, even at the Time Warner level, approval of the Bebo deal was not unanimous. They believe that AOL bought Bebo in part because management thinks that Bebo will make the AOL package (or parts of it) more attractive to a potential acquirer. In our opinion, this remains to be seen.
AOL COO Ron Grant, the primary quarterback of the Bebo deal, is not a popular executive within AOL. Rightly or wrongly, he is often blamed for bad decisions made at AOL’s senior levels. Time Warner CEO Jeff Bewkes is reportedly loyal to Ron and backed him on the Bebo deal. One of our sources, however, referred to Bebo as “Ron’s last stand.”