AOL & the Curse of Beb-oh!

When Time Warner spent a whopping $850 million dollars to buy Bebo, an also-ran social network, back in March 2009, I wrote: “Given Time Warner’s history of messing up everything it buys, I wonder how long before Bebo becomes Beb-oh!”

Now comes word that AOL is getting rid of Bebo, and may have sold it to a private capital investor for somewhere between $2.5 million and $10 million. That would put it in the same category as The New York Yankees’ $39.5 million deal with pitcher Carl Pavano — hope and hype that ended in heartburn.

If the reports are indeed true, Randy’s Folly cost the company a whopping $840 million of much needed cash. Randy being Randy Falco, the clueless executive who took AOL to the brink of extinction before someone woke up and brought in Tim Armstrong to make a miracle.

Armstrong is trying to move AOL away from its access-centric revenue stream by building a content-centric company. Thanks to the acquisition of Weblogs Inc. (way back when), AOL now sits on a gold mine of web brands, Engadget being the most well known. The company has also embarked on an expansive and ambitious strategy with new programs like Seed.

At the D8 conference, when Armstrong was asked “What is the future of the company?”  he replied, “If I had to describe it in one word, I think it’s content, and I think it’s content because there’s an opportunity to marry what the content’s already done with what the content can do.” Given that I’ve viewed AOL’s content strategy over the past year and a half as a smart one, I can’t say I disagree with Armstrong’s approach.

We are in the middle of a big media shift, which means some of the traditional brands are going to fall by the wayside. New ones will emerge. AOL can be home to many of them — whether they’re homegrown or come via a shopping spree.

As I have often said, we’ve entered an era of too much data (including news). From this data we need to derive information, and to this information we need to offer context. That context is social and local. These are not easy tasks, mind you; they require the resources of a technology company — and thankfully AOL has plenty of those.

This is precisely the time AOL should be making aggressive acquisitions — not Associated Content, but companies like Foursquare and Gowalla — and use them to build a new class of “media entities” that revolve around location and social. As I wrote earlier, I see such services as the next iteration of gourmet magazines and retail guides. They can also help AOL realize its local ambitions.

Just as back in the day, AOL viewed weblogs as a new media entity,  Armstrong must peer into the future and rethink what media is, including getting rid of notions such as content created by content farms such as Associated Content. It should also explore a new opportunity being tapped certain startups: the marriage of content and commerce sans traditional advertising.  Good examples include New York-based Thrillist, which bought JackThreads and San Francisco’s women-oriented content company, Sugar Inc., which in turn bought FreshGuide. In a world awash with cheap page views, it’s the premium experiences that result in premium advertising dollars and commerce-related revenues.

But thanks, in part, to Bebo, AOL doesn’t have a lot of cash on hand — roughly $262 million — which limits what Armstrong can do. Now imagine if Armstrong had that $840 million that was wasted on buying Bebo back in his coffers; he could easily go about building a brand-new AOL. Instead he needs to take measured steps and worry about paying the price of someone else’s stupidity.

OMG Beb-oh!
Photo from the Archives: Randy Falco, former Chairman and CEO of AOL, Joanna Shields, former President of Bebo, and Ron Grant, ex-President and COO of AOL. ( Via Business Wire)

This article also appeared on BusinessWeek.com

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