The Rise and Fall of Bebo: The Video Network That Could Have Been (Part 1)

[Ed note: This a two-part special look at the rise and fall of social networking site Bebo, purchased by AOL in 2008, and its brief run as one of the web’s top networks for original web series. Tomorrow we will run part two of this series. ]

Late last month, AOL quietly announced that it had agreed to sell the social networking site, Bebo, to Criterion Capital a private investment firm. While neither side has disclosed the actual purchase price, most reports indicate that it was less than $10 million dollars, a fraction of the $850 million AOL paid just two years ago for the company. AOL had hoped the acquisition would position itself as a major player in online social networking. Bebo for its part showed great promise, largely due to branding itself as a destination for original online content, starting with the successful web series, KateModern. In the end, AOL’s dreams of social media dominance went unfulfilled, Bebo ceased supporting original productions, and many people lost their jobs.

Bebo, which started in 2005, gained significant attention in 2007 with the announcement that it would co-produce KateModern, the first in the series of lonelygirl15 spin-offs. Bebo had hoped to distinguish itself from rival social networking sites by developing a slate of original content, which in turn would foster a high level of interactivity with the audience through its network. Fans could interact with the characters and each other, as well as engage in behind the scenes discussions with the producers, writers, and actors. In this manner, Bebo hoped to replicate and expand upon the interactivity lonelygirl15’s creators had created with its existing fan base.

It was a bold move that gained the upstart network much needed attention not to mention an influx of new users primarily from the U.S. where it had lagged significantly behind both Myspace and Facebook. In fact, many believe it was the move into original production, specifically the success of KateModern, which made Bebo so attractive to potential buyers while simultaneously driving up the price.

The mastermind behind Bebo’s strategy was Joanna Shields, who joined the company as President International in January of 2007 and immediately set about repositioning the company as a type of new media TV network, a comfortable and easy sell to advertising agencies unfamiliar with burgeoning social networks. Bebo aggressively targeted advertisers with a clear message and a strong presentation. Agencies accustomed to dealing with television buy rates suddenly found it easy to justify spending a fraction of that money on a web series.

In time, it became a perpetual cycle. Advertising partners would sign on, creating buzz in the media that in turn would prompt more advertisers to join up with Bebo. Furthermore, KateModern was a success both in terms of quality and viewership, garnering over 60 million views with an active fan base, which flocked to and utilized Bebo’s social network. The net result was a company that appeared to be on the rise, innovative, profitable, and fully in command of a growing industry.

When AOL purchased Bebo in March of 2008, AOL chairman Randy Falco at the time called it the cornerstone of AOL’s online strategy and proclaimed, “We will be a social media powerhouse.” AOL never became a social media powerhouse. One year later, Tim Armstrong replaced Falco as CEO and set about disentangling AOL from Time Warner and placed Bebo on the market at fire sale prices. Joanna Shields, who had been serving as President of AOL’s People Networks division, left the company two months later. In fact, she recently joined Facebook as the company’s vice-president of sales and business development for Europe, the Middle East and Africa (EMEA). Whether or not she is in the same position or even inclined to promote online video as she did at Bebo remains to be seen.

In hindsight, there have been many attempts to explain AOL’s Bebo Folly. The first and most widely stated reason is that AOL simply overpaid for Bebo. Secondly, shortly after the Bebo acquisition, the global economy tanked, with the advertising dollars Bebo depended upon drying up. In fact, the lack of advertising revenue, according to KateModern producer, Miles Beckett, was the reason the show ended a few months after the sale of Bebo.

Furthermore, while Bebo enjoyed a moderate amount of success with subsequent original programs, Sophia’s Diary was, for instance, sold to British television, none of them were able to match the financial success or viewer response of KateModern. Lastly, stiff competition from Facebook and perhaps AOL over estimating Bebo’s growth potential and not supporting it enough led to a shrinking market share and dwindling user base. (In fact, prior to writing this article, I had not viewed my profile in over 18 months.)

For her part, Joanna Shields blames Bebo’s culture and technology for its shortcomings. Speaking at the Facebook Developer Garage she stated, “A lot of the dreams and aspirations I had for the other company [Bebo] I couldn’t execute on because the platform wasn’t stable and there were all sorts of issues with it.” At the time of the sale, Bebo led all social networks in server downtime. Furthermore, she stated that from the beginning the goal was to sell Bebo to a larger company. “You do different things when you’re meant to sell a business versus growing it for the long term,” stated Shields. If the goal had always been to get the best asking price possible, Shields did an excellent job. Bebo’s founders, the husband and wife entrepreneurs Michael and Xochi Birch, reportedly walked away from Bebo with nearly $600 million in profit on just 3 years work.

Bebo is still in business; however, and in fact today just announced that Criterion Capital managing partner Adam Levin will step in as CEO. One thing is likely certain, Bebo will never return to the position it held during the production of KateModern. Bebo was poised to be a major player in web series; perhaps if a different company had acquired it, one focused on that same goal, its fate might have been different. Regardless, Bebo is an interesting case in the world of new media acquisitions where one wrong move can prove disastrous.