When Time Warner (TWX) shelled out $850 million for Bebo, it seemed an obvious mistake (See “Bebo Buy Silly, AOL Screwed“): Almost a billion dollars in cash for a second-tier social network whose users were primarily teenagers in Europe? It didn’t compute.
A former exec relates a funny anecdote, heard secondhand (and unverified). AOL soon came to understand what it bought when Bebo CEO Joanna Shields explained to AOL’s senior management that Bebo users were actually a lot younger than they had thought:
Months into the purchase, Shields met with [AOL president Ron Grant] and company, and had to bring forward the news that the Bebo user demographic was actually materially younger than what they thought (and it became immediately apparent to all, upon hearing, that it meant bad news for the ad revenue potential). Not sure what they were doing, user-metric-wise, pre-sale, that led them to believe the average user was older, but having a bunch of tweens isn’t a great strategic asset (after all, there are only so many Miley Cyrus DVDs you can sell.
(AOL has not confirmed this anecdote. We’ll update if the company chooses to comment).
Revelations like this have probably helped spur the recent rumours that AOL is considering offloading Bebo for $200 million. For what it’s worth, here’s our take on that:
Bebo may actually be worth less than $200 million, especially in this environment, and it might make sense for AOL to dump it. But there is no way Time Warner would admit such a colossal error so close to the time that it made it. Ron Grant, Randy Falco, and, to a lesser extent, Jeff Bewkes staked their reputations on justifying that $800 million price tag. They’ll get fired before they stand up and acknowledge that they blew it.
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