Sale of Bebo to AOL earns founders $US850 million in three years

Young entrepreneurs Michael and Xochi Birch, 37 and 35, founded one of the most popular social networking sites in the world, Bebo, in 2005. Three years later they have sold it to US internet giant AOL, part of Time Warner, for $US850 million 

Bebo, pitched mainly to 13-to-24 year olds, claims 40 million registered members worldwide. In Australia, there were 2.8 million when SmartCompany.com.au interviewed the founders in late December last year.

The Birches, who live in San Francisco and have a substantial undisclosed stake in the company, are reported to be “very happy” at their new-found but undisclosed wealth. The couple is expected to depart the company once the deal is complete. But manager Joanna Shields will remain.

Bebo is just the latest social networking site created by entrepreneurs to fall into big corporate hands. Rupert Murdoch’s News Corp bought MySpace for $US580 million and Microsoft paid $US240 million for a 1.6% stake in Facebook.

The new Bebo reportedly has plans to expand into France, Germany, Italy, Spain and the Netherlands. Australian general manager Francisco Cordero was unavailable for comment this morning.

According to the internet traffic monitor Hitwise, Bebo – which stands for “Blog early, blog often” – is the second most popular social networking site in Britain.

Bebo was not the Birchs’ first internet business. The couple met at a college bar as university students in London; they married and started working for an insurance company as engineers.

They got bored and started building websites. They had built six before they created Bebo. Michael Birch told SmartCompany in December: “I was totally addicted to the [social networking] concept… we actually did one in 2003 called lingo.com, and about 25% of the users at that time were actually Australian, interestingly enough.

“It was more popular here than it was in the US and we did that for about six months and then sold it because we ran out of money… It was growing too quickly for us to sustain, but having sold it we kind of regretted selling it and wanted to get back into social networking,” he said.

Eden Zoller, principal telecommunications analyst at Ovum says: “The $US850 million price that AOL has paid for Bebo seems reasonable, and even a bargain in comparison with the $US240 million paid by Microsoft a few months ago for just a 1.6% stake in Facebook. It looks like the bubble in the valuation of social networks has burst.”

He says the two companies are now touting a combined community of 80 million but, “…this is overstating the case, as not all AOL’s AIM customers will automatically be members of Bebo. But you can understand where they think the potential lies; immediate, accessible communications is the lynchpin of social networking.”

“Bebo is nurturing a valuable demographic,” Zoller says. “Its community is made up of children and teenagers that are literally growing up with social networking.

“AOL no doubt hopes that if it can capture them now, then once they have grown out of Bebo they will be well disposed to complementary AOL services and a receptive audience for future developments.”