• TechCrunch, Friday, March 21, 2008 11 AM

AOL's purchase of Bebo for $850 million last week was a defensive move, and a rather unfortunate one. The Time Warner unit is still trying to shift its business model to being more of an advertising network, but AOL still makes much higher margins on the ads it sells on its own pages. Because of this, AOL needs to maintain (enhance?) its portal business, which made owning a social network a priority.

But was Bebo the right choice? The Silicon Alley Insider reports (http://www.alleyinsider.com/2008/3/aol_many_senior_managers_were_against_bebo_buy) that several top AOL execs were not consulted on the acquisition, and are now worried that the move was too hasty.

According to Schonfeld, "AOL was a desperate buyer," and Bebo wasn't the company's first choice. The social network wanted more than $1 billion, but even at $850 million, AOL may have overpaid, primarily because Bebo's growth is flattening compared to other social networks like Hi5 and, yes, Friendster. It will now be up to AOL to put its targeted advertising platforms to good use in order to make the Bebo acquisition worthwhile. If AOL succeeds, then the Time Warner company will be able to grab more business from other social networks.

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