GO
Loading...

What Selling Bebo says About AOL's Strategy

AOL
CNBC.com
AOL

Today AOL made it official: it's sold Bebo to Criterion Capital Partners.

After buying the social network for $850 million in March 2008, the company said in an 8K SEC filing today "it will treat the common stock of Bebo as worthless."

While that may be a big win from a tax perspective — the company expects to record a $275 million to $325 million tax benefit in the second quarter — it acknowledges a total disaster.

The divestiture for close to nothing is a testament to how focused CEO Tim Armstrong is on stripping out anything extraneous. He's willing to sell at a horrific loss in order to streamline the company and focus on his strategy of creating original digital content. Whereas Armstrong's predecessor bought seven companies in the ad space alone, he's on a selling spree, dumping Buy.ad, ICQ, and now of course Bebo. Laying off 1/3 of the company's employees: it's all part of a plan to get down to business creating content and eliminate everything else.

Last week AOL imposed a new organizational structure on its websites. The company didn't publicize this, but I think it says something about a more focused attention on content. Instead of maintaining a long list of sites and brands, it organized them into 16 so-called "supernetworks," categories like finance, sports etc. It seems obvious—organize your brands and it'll be easier to cross-promote, share content, and sell ad packages.

Whether or not AOL will be able to grow its ad-dependent digital content business — that's yet to be determined. And AOL faces significant competition, not just from the likes of Yahoo , but also from Demand Media, which creates content based on user searches and syndicates it across the web and is on track to file for an IPO later this year.

Here's an excerpt from a letter CEO Tim Armstrong sent around to AOL employees this morning:

"In April we communicated the fact that Bebo was among the assets we would be not be keeping as part of our main portfolio of businesses. At that time, we indicated that we hoped to finish our strategic evaluation by the end of May, which we did. Today we are announcing that we completed the sale of substantially all of the assets of Bebo, Inc. to Criterion Capital Partners, LLC.

This sale is important for Bebo's users and for AOL. The deal will allow Bebo's users to remain within the social platform that they know and love, while enabling a new owner to bring new possibilities and experiences to bear. Criterion Capital Partners are specialists in facilitating growth plans and turnarounds and are well placed to drive Bebo's effort to strengthen its foothold within the highly competitive social networking arena.

For AOL, the transaction will also create a meaningful tax deduction, which should allow us to more effectively manage our tax strategy."

Questions? Comments? MediaMoney@cnbc.com

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