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Is Social Networking Yahoo's Holy Grail?

Monday, 21 May 2007 | 10:50 AM ET

Ever since News Corp snapped up MySpace, media companies are on the lookout for other hot social networking sites. And now Yahoo is hoping to score a similar, if smaller, win in the U.K. Yahoo is working on an acquisition of Bebo, the popular British social networking site.

Here's the key comparison that shows how hot this type of acquisition has become: News Corp bought MySpace for $580 million in 2005, but now Yahoo is willing to pay up to $1 billion (according to the U.K.'s Daily Telegraph) for Bebo -- but it only has 25 million users worldwide. If you do the math, Yahoo is willing to pay nearly seven times per user than what News Corp paid.

Yahoo is desperate for a stake in this space. Last year, its $1 billion bid for Facebook was rejected, and now it's pushing to make this new deal work, even though Bebo's co-founders reportedly have said they'd rather fload Bebo than sell.

Yahoo's trying to sort out how its media-entertainment division's going to work. Burned when it missed out on the MySpace acquisition, and reorganized with several high-level layoffs (bye-bye Lloyd Braun), Yahoo needs a new plan. Panama, its new search advertising system, is part of that, but it needs to assert its ability to compete with all-dominant Google.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.