AOL Learns Costly Lesson About The Profitability Of Social Networks

AOL announced this week that it is looking to close or sell social network Bebo. If it sells, it will likely be at a portion of the original $850m AOL paid  for the site in 2008.

The site was originally destined to comprise the centerpiece of AOL’s People Network business unit, so AOL executives must be sorely disappointed by Ex-Bebo users abandoning the site for the likes of Facebook.  AOL likely hoped that Bebo might reignite the company’s early success in social networking, especially as Bebo was reaching over 12+ million users as of May of 2008(it now has 12.8mm).

However, it’s hard to feel too bad for AOL’s plight as the revenue of social networks in revenue has never been stable—simply, they took a risk and they lost.

Even Facebook has just started to turn a respectable profit. In 2009, Facebook reported revenues of 550-600 million, which in itself was a huge jump from 300-400 million levels in 2008. Only now, in 2010, does Facebook predict reaching $1 billion in revenue.

To give some perspective, search/news site Yahoo! raked in close to 7.2 billion in 2009 alone.

While AOL clearly missed an opportunity with Bebo, it’s also evident that AOL overpaid. As a result, it’s more likely that Bebo will close than be bought.   It would take some kind of social media maverick to buy Bebo from AOL, no matter the cost, considering that Bebo has only  12.8 million users compared even to MySpace, which has over 100 million.

The question now is how Facebook will continue to monetize now that it has beat down the majority of its competitors.

As for how remaining social networks stack up in terms of revenue, Twitter saw $4 million in 2009 and saw it’s very first profitable month last July, with a $30,000 take(it was founded in 2001). Considering each social network has millions of users, each site also appears to be having issues with translating their online success into monetization.

Posted via email from Speaking of Social Media


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