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msnbc.com
updated 4/6/2010 6:52:05 PM ET 2010-04-06T22:52:05

Struggling Internet company America Online said Tuesday it plans to sell or close Bebo, the social networking site it acquired two years ago, by the end of May.

"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," AOL said in a statement.

In order for Bebo to continue under AOL ownership, the company said, it would "require significant investment in order to compete in the competitive social networking space," alluding to the success of such social networking sites as Facebook, MySpace and Friendster.

AOL said Tuesday it "is not in a position at this time to further fund and support Bebo in pursuing a turnaround in social networking."

The company bought Bebo in March 2008 for $850 million from parent Time-Warner. At that time, Bebo was one of the largest social networks in Britain, and was ranked first in Ireland and New Zealand and third in the United States, according to AOL.

"Bebo has never had an audience that came close to MySpace and Facebook, except for in the United Kingdom," said Andrew Lipsman, senior director of industry analysis for comScore, which does Web site analytics.

In the last two years, Facebook's growth has been explosive compared to other social networking sites, which are struggling to reinvent themselves in order to draw new users. Bebo had 12.8 million unique visitors in February, according to comScore. That represented a 45 percent decline from February 2009.

In contrast, Facebook had 462 million unique visitors in February 2010, up 68 percent from the year before.

After Facebook, the social networking sites with the most visitors in February 2010 were: MySpace, with nearly 110 million; Twitter, with 69.5 million; Orkut, with 49.8 million; HI5.com, with 39.6 million, according to comScore.

Facebook has more than 400 million active members worldwide, with about 30 percent of those in the United States.

Launched in 2005
Bebo was launched in mid-2005, and its offices are in San Francisco. In 2006, the site won a "Webby" award for best social networking site from the organization that annual recognizes Web sites and online achievements. Bebo has about 40 employees now, compared to 100 or so when the site was bought by AOL.

At the time of its purchase, AOL chairman Randy Falco said the social networking site was "the perfect complement to AOL’s personal communications network and puts us in a leading position in social media."

Yesterday's company statement was quite different. AOL "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."

Was significant purchase for AOL
The $850 million in cash that AOL paid Bebo made it AOL's largest deal since it bought MapQuest for $1 billion in 2000 (not counting AOL's $106 billion purchase of Time Warner in 2001). At the time, AOL was still joined with Time Warner Inc., but it separated from the media conglomerate late last year.

Since spinning off from Time Warner, AOL has sold one property: affiliate marketing business Buy.at, which it sold in March to Digital Window Ltd. for an undisclosed price. Digital Window runs a network of affiliate marketing sites, which steer customers to e-commerce sites in exchange for a cut of sales.

AOL, a pioneer in the dial-up Internet business during the '90s, has been trying to streamline and concentrate on rebuilding itself as a content and advertising business. It runs dozens of Web sites, including popular tech blog Engadget and personal finance site WalletPop.

Clayton Moran, an analyst at The Benchmark Co., said the price AOL paid for Bebo was questioned from the start.

"It made a lot of industry watchers scratch their heads," Moran said. "At this point they probably would admit they overpaid for it and now they're just cleaning it up."

He said that if AOL does sell Bebo, it would likely fetch a fraction of its original purchase price.

Msnbc.com staff writer Alex Johnson and the Associated Press contributed to this report.

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