AOL BUYS BEBO FOR $850 MILLION

AOL BUYS BEBO FOR $850 MILLION

AOL announced plans to fork out $850 million for Bebo, a social-networking site with a strong presence in the United Kingdom, but a distant rival in the U.S. to heavyweights such as MySpace and FaceBook.

The acquisition is the single biggest AOL has made in several years, as it attempts to transform itself from an Internet-access subscription business into an advertising-focused one. The deal represents a major bet that online advertising will retain its sparkle and social-networking sites will benefit.

The transaction is rooted in the belief that social networking is becoming a major gateway for how people use media and services on the Web, including email, search and video. "People are using social networks as their prism to the online world," said Bebo President Joanna Shields, a former Google Inc. executive who joined Bebo last year and is expected to remain at the helm.

AOL plans to twin Bebo with its chat services AOL Instant Messenger and ICQ, creating a platform that it says will reach 80 million unique visitors around the world. "Social networking was really invented here at AOL. We let it get away from us," said AOL Chief Executive Randy Falco.

Bebo, founded in 2005 by a married couple, rapidly expanded to include a range of entertainment including TV shows and music. While it is little known in the U.S., it has a higher profile overseas, and AOL hopes to use the site to boost AOL's international presence.

But the biggest issue may be luring advertisers to Bebo. Ad spending on social-networking sites is still tiny and largely experimental for marketers. Expected to reach $1.6 billion in the U.S. this year, up from $920 million in 2007, the market is dominated primarily by MySpace and FaceBook.