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AOL's Play For Bebo: What It Could Mean For Yahoo/Microsoft Deal

CNBC.com

If Microsoft's play for a tiny chip of Facebook helped value the company at a staggering $15 billion, then AOL's play for social networking site Bebomakes perfect sense, even at $850 million. Such is the frothy world of social networking nowadays and the premiums old guard companies are willing to shell out to look cool.

And it's another sign of just how brilliant Rupert Murdoch was in snapping up MySpace for what at the time was looked at as a ridiculously exorbitant price to pay.

Bebo's attraction comes from its 40 million users, mostly overseas, and the promise and opportunity some say it has in the United States. Couple that with AOL's own social networking users, on both AIM and ICQ, and it boasts 80 million unique users around the world. For under a billion dollars, it was able to double its size. Not bad.

But the deal comes with lots of other secondary stories worth noting, not the least of which is the ongoing speculation that Yahoo and Time Warner have been working on a deal of their own to thwart the hostile bid looming from Microsoft .

Earlier this week, we learned from Murdoch that he has no intention of going up against Microsoft for Yahoo, despite so many rumors to the contrary. Something I have been writing about for weeks. A day later, Time Warner'sJeff Bewkes jumps into the fray, saying he would consider selling off or spinning out AOL, in a possible deal that could include Yahoo. And then just yesterday, Disney's Robert Iger says his company has no interest in buying either AOL or Yahoo.

What do all of these deals and non-deals have to do with each other? I'm not saying that AOL's deal for Bebo today makes a potential deal for Yahoo impossible. Some will say it could make a spin out AOL combining with Yahoo all the more attractive. But as AOL tries to integrate Bebo into its operation, it would become more unlikely that the company would want to take on an even more complex integration with Yahoo at the same time. I go back to my original thought on all this: the unknowns of a Time Warner/AOL/Yahoo partnership versus the firm, 62 percent premium from Microsoft already on the table, just doesn't measure up for Yahoo shareholders.

Back to AOL's Bebo deal: It's clear these companies need to beef up critical mass on social networking. And they all seem to be taking steps along those lines. AOL needed to do something to get to jumpstart its AIM to get it on par with the stickiness and financial success MySpace and Facebook have been enjoying. It's not just about numbers; it's also very much about how long those numbers stick around on the site. Bebo might make for a good fit; but at his kind of premium, it's a pricey roll of the dice. Not nearly as pricey as a play for Yahoo, but pricey nonetheless.

My sense: Yahoo is running out of options. Fast.

Update: Bebo ranked 4th among 55 social networks, after MySpace, Facebook and MyYearbook, accounting for 1.15 percent of all U.S. visits to the category. Bebo's share of U.S. Iinternet visits was down year over year 23 percent last week and 22 percent in February 2008. This according to hitwise.

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