• by Gavin O'Malley  @mp_gavin, April 6, 2010

Two years after dropping $850 million on Bebo, AOL is considering selling or "shutting down" the struggling social network this year, Online Media Daily has learned.

The news will be included in an annual filing for Bebo in the UK with Companies House, which will be released on Wednesday, according to an AOL rep.

"As a part of that filing, we will indicate that we are currently evaluating strategic alternatives with respect to Bebo, which could include a sale or shutdown of Bebo in 2010," she said in an email.

In an internal memo sent to employees on Tuesday, AOL admits that social networking is too challenging a market, and requires scale that Bebo presently lacks.

"The strategy we set in May 2009 leverages our core strengths and scale in quality content, premium advertising and consumer applications, positioning us for the next phase of growth of the Internet," reads the memo. "As we evaluate our portfolio of brands against our strategy, it is clear that social networking is a space with heavy competition, and where scale defines success."

"Bebo, unfortunately, is a business that has been declining and, as a result, would require significant investment in order to compete in the competitive social networking space," the company concludes. "AOL is not in a position at this time to further fund and support Bebo in pursuing a turnaround in social networking."

The UK-based site has fallen from 22 million monthly unique visitors when it was acquired in March 2008 to 14.6 million today, according to comScore.

The decision follows the conclusion recently reached by several corporate tax experts to the effect that AOL was better off just scrapping Bebo.

"Without getting into any specific facts or companies, it will often be more attractive for a U.S. corporation to simply shut down a subsidiary and claim a deduction for the worthlessness of the stock against ordinary income instead of selling the stock at a distressed price and taking a capital loss, which may only offset capital gains," Bryan Smith, a partner at Perkins Coie, told TechCrunch.

"A sale of Bebo would almost certainly be less attractive," another tax expert, who wished not to be named, told TechCrunch. "If someone were to pay them $100 million for the service, which is optimistic, AOL could still offset the remaining $750 million as a tax loss ... But it could only apply against long term capital gains, and AOL doesn't have any to offset against ... They'd have to carry that loss forward and hope for future gains to offset it against."

AOL, for its part, says it is "committed to working quickly to determine if there are any interested parties for Bebo and the company's current expectation is to complete our strategic evaluation by the end of May 2010."