Why AOL buying Bebo for $850M is a good buy

I read comment that AOL is overpaying in its acquisition of Bebo.  I beg to disagree.  It is not appropriate to compare this to the "steal of the century" that was MySpace.  Bebo is well worth what it got bought for both because of its current scale and more importantly because of the incredible quality of its user engagement

Let's do a woefully inadequate back of the envelope on Bebo:

• 40 Million Uniques
• 40 page views per user per day
• ---> 48 billion page views a month ?
• 50% monetizable inventory
• 25% inventory sellout
• 1 ad per page
• €1 average CPM
• ---> current monthly revenue €6 million per month ?
• potential revenue if fully maximised of €50M per month ?

Optimize even some of these metrics over time and you could easily see €300M of revenues in this business at the current scale.

This does not sound like a dumb buy to me.

Remember, social networks represent 13% of young adults attention but only garner 2% of ad revenues.  Whether this is recession proof I do not know, but there is a lot of catching up to do. 

Technorati Tags: bebo,aol,acquisition

Comments

[Buster]

Umm, if you pay attention to the latest information from Google and MySpace, you will actually see that monetising social network inventory (through traditional banner advertising or contextual search) is actually quite difficult. Your analysis is so basic & ignorant of this fact that its a bit scary. Secondly (and related to the first point), if your numbers & hypothesis were even based in reality, wouldn;t Bebo be making these types of revenues already, and wouldn;t they be foolish to sell at this price? Instead, like MySpace, bebo have guaranteed advertising minimums (which are not reflective of the true organic underlying monetisation). bebo have used this to get a ridiculous valuation from a company who has no idea what they are doing (AOL). Your analysis is rubbish in sum. bebo are laughing all the way to the bank, and AOL shareholders again will pay the price

[Oliver Thylmann]

You probably already found these two links but anyway:

http://plentyoffish.wordpress.com/2008/03/15/bebo-numbers/
http://kara.allthingsd.com/20080313/bebo-by-the-not-so-big-numbers/

So average CPM per page is $0.14, and this is in an advertising boom market. Traffic is going down not up.

But ... there might be a lot more to be done with the social graph data. Which is why Face book is spreading outside facebook. There I understand that those 3 that manage social graph will win and there will be money to be made. But other than that, Social Networks without a special purpose seem to be the forum traffic of our age.

[Oliver Thylmann]

Nice idea in general, but sadly unlikely. Think of social networks like IM clients or Forums. Then take a look at monetization of forms or IM traffic.

Forums are the trash reach for advertising. not really calling social networks trash, but the power is in analyzing the data and suggestion the right things, which is not really advertising.