All Things Digital

AOL announced today that it has forked over the $850 million dollars in cash for Bebo–presumably in small bills in big bags, so all the fully vested Bebo employees can’t run away quite as fast–completing its acquisition of the quirky No. 3 social-networking site.

As part of the process, it has also created a new business unit, called the People Networks, which will be headed by Bebo President Joanna Shields.

Her new title is EVP at AOL and President of People Networks and Shields will be reporting to AOL President Ron Grant.

The People Networks will combine Bebo with AOL’s AIM, ICQ and other community platforms that AOL said reaches about 80 million users worldwide.

While the new moniker might sound as if AOL (TWX) has become a new Communist Party, the company has obviously placed high hopes in the division to make a lot of capitalistic dough.

More importantly, AOL has got to be betting that the new unit will finally bring its moribund community elements back to the vivacious life they all previously enjoyed.

Consider the slow death of AOL’s once-mighty “people” parts, which clearly dominated the scene early on in the online space.

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Yesterday, I traveled to Los Angeles for paidContent’s second Economics of Social Media conference, which opened last night and is being held all day today at the Skirball Cultural Center.

This morning, I am interviewing Steve Wadsworth, who helms Walt Disney’s (DIS) Internet businesses.

And after sating myself with as much Club Penguin info as possible, I will be sitting rapt in the front row, as folks like Yahoo’s (YHOO) Jeff Weiner, Bebo’s Joanna Shields and AOL’s (TWX) Ron Grant talk about how social media is going to finally make money.

BoomTown is on a vision quest to answer that question in the coming year, so we are kicking entrepreneurs and taking names!

Here’s a short video I did on the opening night, including talking to paidContent’s Staci Kramer and Seth Goldstein of Social Media.

But, first, it starts with a tour of my temporary L.A. abode at the home of Mahalo’s Jason Calacanis:

OK, we Photoshopped it, but only because we could not get our head around what the official Yahoo/Microsoft post-merger picture might look like.

With news that the pair were in informal talks, first broken by CNET, Boomtown still could not conceive of Yahoo (YHOO) CEO and Co-Founder Jerry Yang trading high-fives with Microsoft (MSFT) CEO Steve Ballmer, given Yang has thus far behaved as if the unsolicited bid from the software giant was akin to eating a bowl of worms.

But, in the words of the immortal John Lennon, “Imagine all the people/Living life in peace.” Thus we took that famous picture of AOL’s Steve Case and Time Warner’s (TWX) Jerry Levin (they seemed so happy at the time–who knew?) at the dawn of that dog of a merger and went to town.

BoomTown has always been an avid student of those always curious post-acquisition/merger shots that get taken as the first public visual expression of a deal.

For example, the genuine one, pictured below, of the Bebo/AOL union announced yesterday, with Bebo president Joanna Shields shaking hands with AOL CEO Randy Falco, while AOL President Ron Grant stands nearby, seems unusually awkward and uncomfortable to me, for example.

Is a picture worth a thousand words or are looks deceiving? You decide.

After its AOL division paid out an insane $850 million for social-networking site Bebo yesterday, one had to wonder if the true digital legacy of Time Warner (TWX) will be as the perpetual gravy train for legions of Web players.

It certainly seems that way, from the original AOL execs who “merged” their company with Time Warner in 2000 and cashed out at the peak right after the deal to the series of ad-networking start-up entrepreneurs who got acquired, took their payouts and skedaddled right on through to the two founders of Bebo–Michael and Xochi Birch–who didn’t even stay long enough for a latte after grabbing their chunk of the payday Time Warner was handing out in crisp bank notes for the social-networking site they founded.

And, more importantly, after one digital misstep after the next dating back to its Pathfinder days–which I have likened to watching someone fall down an endless staircase–one also has to wonder if Time Warner will ever see any of the upside of the Internet itself.

I remain dubious.

And after interviewing numerous sources close to the company yesterday after the Bebo deal was announced, I am even more certain of more trouble ahead.

Here’s why:

1. While I have always admired Bebo for its innovation and cool ideas about content (I love its “KateModern” online series, as you can see here), AOL essentially just forked over all that money for an audience of primarily teenagers in England, which is Bebo’s biggest market by far (but where Facebook has pulled to No. 1 in a year).

And while Bebo execs would argue with me about this, especially since international aspirations were touted by AOL yesterday, it has no more international traction than much more powerful leaders Facebook and MySpace. More significantly, its size in the important U.S. market, which is hoped will be helped by a marketing boost from AOL, is small and further traction remains questionable.

To be fair, AOL also touted the high engagement levels, which Bebo does have in terms of both minutes and page view per user.

2. Sources close to the company say AOL CEO Randy Falco and President Ron Grant–who are none-too-lovingly called Burns and Smithers at AOL–kept the deal a relative secret from most other execs, including those who might be majorly impacted.

It is not abnormal for acquisitions to be done in a tight group, but was apparently excessive in this case, and reminds one of the sneakiness of former Time Warner CEO Jerry Levin in the troubled AOL merger.

3. Sources said Falco had repeatedly told execs at AOL that he had to do a “big property” acquisition to move the needle, which has not been exactly moving at the unit of late, in order to show Wall Street that AOL had a social-networking strategy. “It’s like constantly scrambling eggs, by doing big new moves, you can hide the problems,” said one exec.

4. The turmoil in its online advertising unit, dubbed Platform A back in the fall, is real and profound and extraordinarily troublesome, given that it is supposed to be the engine to make the Bebo financial projections work at AOL. As I wrote earlier, Bebo needs that jump-start given its small revenues and profits.

The recent departure of three of the key executives who were supposed to be part of Platform A’s success–VP of Marketing Solutions Kathy Kayse and EVP for Global Advertising Strategy Dave Morgan in February, as well as Platform A President Curt Viebranz last week–is worrisome, even though it has been floated by AOL as a housecleaning.

But, curiously, all get good marks for competence from many and had, in fact, been recently touted as saviors by AOL. They do share one thing in common, said several sources: Run-ins with Grant, over cuts in spending and disagreement over aggressive sales projections in a recessionary economy.

In addition, all the key execs from its Tacoda acquisition are gone, along with those from its Quigo buy.

And, while its Advertising.com top exec Lynda Clarizio has taken over Platform A and is considered a strong exec and a “go-getter,” many sources told me she also reportedly had similar testy run-ins with Grant, before he recently was quoted on her promotion: “There is no one better qualified to do this than Lynda, whose track record at Advertising.com has been nothing short of stellar.”

While corporate departures and infighting are also common at many companies, especially over budgets and performance expectations, the level of rancor at AOL has been high.

5. Perhaps most importantly, it remains a mystery to me and many others I talked to yesterday that AOL has not truly attempted to take its very powerful properties like AIM and ICQ and make them more social, building applications on top of already robust ones and partnering around the Web.

“Didn’t AOL invent the social graph with Buddy Lists?” said one perplexed Silicon Valley luminary to me. Yes, indeedy, it did.

Thus, I am still trying to figure out why AOL–which was built on the pillars of community, communications and connectivity–has consistently not been able to leverage its still-valuable assets.

I suppose it is sexier to do a big, splashy deal, of course, which takes focus away–for a while at least–of the essential need to take hits, while doing the slow block-and-tackle work it will require to really build a strong ad and social network.

Buying Bebo, the third-ranked social network, for so much and trying to turbocharge it is a very lofty goal, of course, but the real problem with the acquisition is that it feels like an answer in search of a question.

While Bebo President Joanna Shields–who will enter the AOL exec team as part of the deal–and the Birches have clearly built a very interesting property, the weight of Falco’s calling it a “game-changer” on which AOL’s future rides could turn out to be much too much for Bebo to carry.

That is, especially with that heavy bag of Time Warner cash it is also shouldering.

What’s AOL getting for its $850 million in cash to purchase of social-networking site, Bebo?

A very attractive social-networking service and a very experienced exec who has been running it.

But, perhaps more importantly for those who focus on pesky numbers, not a whole lot of revenue and negligible profits, judging financial information I got a gander at, courtesy of sources at several companies that looked at funding or buying Bebo.

And the rest of the overall outlook for Bebo? A small but growing business, with nice user engagement with strong page views and minutes spent per session, but little traction beyond Britain and Ireland, and too small a presence in the critical U.S. market.

(Bebo is also strong in New Zealand, but BoomTown does not have to point out that that country is not exactly the kind of game-changer that AOL CEO Randy Falco mentioned in his email to the troops about the purchase.)

According to the several sources who were privy to Bebo’s financials, for example, Bebo’s revenues for 2006 were only $7 million with $3 million in EBITDA (earnings before interest, taxes, depreciation and amortization). In 2007, the results are still small, with $20 million in revenues and $5 million in EBITDA.

Using 2007 results, that means Time Warner’s (TWZ) AOL paid a handsome 42.5 times revenues and an incredible 160 times EBITDA.

AOL might assert that it makes Bebo a bargain, given that Facebook got valued at 50 times revenue when it got that $15 billion valuation from the $240 million investment from Microsoft (MSFT) last year. Still, Facebook has a huge presence in the U.S. and is growing strongly in Europe, including being just ahead in Bebo’s strongest territory in the U.K.

Projecting outward, the company estimated–remember, these are not actual numbers, but a best guess by Bebo execs–it would have $50 million in revenue and $10 million in EBITDA in 2008; $117 million in revenue and $48 million in revenue in 2009 and $193 million in revenue and $92 million in EBITDA in 2010.

While potential is important, the high price (which was still lower than the $1 billion and above that Bebo might have fetched even six months ago) and its small presence in the U.S. were the reasons several companies passed on acquiring Bebo–including News Corp. (NWS), Google (GOOG), Yahoo (YHOO) and CBS (CBS), said sources close to each of these companies.

On the plus side, users do spend a lot of time on Bebo, engaged by its more robust content offerings, such as its “KateModern” series (which I wrote about here), and its elegant and content-rich offering, which has some of the cleanness of a Facebook and some of the flash of MySpace.

In addition, in Bebo’s president Joanna Shields (pictured here somewhat awkwardly shaking AOL CEO Falco’s hand and with AOL President and COO Ron Grant), AOL gets an experienced and savvy Web exec, which it desperately needs these days, given the flux there.

Shields has worked at RealNetworks and Google and she will continue to run Bebo and report to Grant. In fact, Shields has effectively been running Bebo for a while now, and its founders Michael Birch and Xochi Birch will be leaving the company.

You can see Shields in action in this video, which I did while visiting London last summer:

If Facebook founder Mark Zuckerberg is serious about finding a true No. 2 to replace outgoing exec Owen Van Natta and more, then BoomTown has certainly at least two cents to add.

So here is our list of ideas, which include a number of women execs, since a list that Facebook has made apparently includes a few women too.

(And we applaud that, especially since, as you can see from this page at the social-networking site, there are none in its current top management.)

But you do have to begin with the menfolk, since the top choice of mine is one.

That would be someone that Facebook has already looked at, former eBay exec Jeff Jordan (pictured here). Jordan and Zuckerberg talked a lot last year, before Jordan headed off to lead OpenTable, the restaurant reservations service.

It would be hard to entice Jordan, a one-time contender for the top spot at eBay (EBAY), to leave OpenTable, given it is IPO-bound in the next year.

But he has the chops operationally, having led eBay’s North American unit and also its PayPal division. In other words, this man can scale.

But so can former Yahoo (YHOO) COO Dan Rosensweig (pictured here), who left the troubled Internet portal in late 2006, just before it started its long and painful descent into Microsoft’s bear-hug bid.

Rosensweig is now a principal and its-man-in-Silicon-Valley for the tony New York investment firm, the Quadrangle Group, so it is unlikely he would move over to Facebook.

More to the point, it also unclear how well his gregarious nature would mesh with Zuckerberg’s less social manner (although we would pay big bucks to see those two interacting on a daily basis). But Rosensweig, for all his joshing, has the leadership skills and deep contacts in the tech community.

And since Zuckerberg feels so comfy with Microsoft (MSFT), why not its savvy Chief Media Officer Joanne Bradford (pictured here). There, she “leads global product and platform development, content and programming, business development, product management, marketing and branded entertainment for MSN.”

Plus, she might not relish the idea of helping overhaul Yahoo, if that deal is struck, and has the ad sales and content experience too. Also, she is tough, but nice about it.

So is a sharp Facebook social-networking competitor, Bebo’s President Joanna Shields (pictured here). Based in London, she has worked at both Google (GOOG) and RealNetworks (RNWK) and has an international exposure Facebook needs.

Plus, she knows how to work with founders (in Bebo’s case, Michael and Xochi Birch) and has a charming, though squarely in-charge, demeanor.

Google, of course, has been a good headhunting ground for Facebook and the search giant has been fending off poaching off its execs by Facebook regularly.

But why not go for the big game, as there is a long list of prospects in the higher managment echelons of Google.

That includes: Tim Armstrong, president, Advertising and Commerce, North America; Marissa Mayer, vice president, Search Products & User Experience; Susan Wojcicki, vice president, Product Management; Sukhinder Singh Cassidy, president, Asia Pacific and Latin America Operations; David Fischer, vice president, Online Sales & Operations; Omid Kordestani, senior vice president, Global Sales & Business Development; Salar Kamangar, vice president, Product Management.

But we’re partial to a pair of hard-charging execs who lead critical nuts-and-bolts operations at Google: Sheryl Sandberg, vice president, Global Online Sales & Operations; and Shona Brown, senior vice president, Business Operations.

Sandberg (pictured here) is responsible for online sales of Google’s ad and publishing products, bringing experience Facebook sorely needs. She is also politically savvy, having been the chief of staff at the Treasury Department in the Clinton administration.

Former McKinsey consultant and author Shona Brown (pictured here) has been running Google’s business operations since 2003 and knows how to push around, oops, work with two headstrong founders at once. Thus, Zuckerberg would be a breeze for the sharply honed Brown.

But let’s not leave out Yahoo. We have but one choice here (and someone who has reportedly been on Facebook’s list too): Hilary Schneider, its EVP, Global Partner Solutions. In other words, the revenue person.

The former Knight-Ridder exec (pictured here) is well liked at Yahoo and is also steeped in the world of media, which is important to Facebook. While probably a keeper for Microsoft, it might not be her first choice to stay after a forced merger.

There are a lot of other choices–in fact, I am completely leaving out the many media execs who might be good, as well as some longtime Silicon Valley entrepreneurs who would get along a lot better with Zuckerberg.

Off the top of my head: former AOL head Jon Miller; former Yahoo execs Ellen Siminoff and Jeff Mallett; CBS dynamo Quincy Smith; former When and Ofoto entrepreneur James Joaquin; Fox Interactive Media’s Peter Levinsohn; and many more.

But why not go for the man who was Zuckerberg before Zuckerberg was cool. Yes, the shiniest of Golden Geeks himself, Marc Andreessen (pictured here on the iconic Time magazine cover in 1996).

I could go on and on about the similarities I find between the two, if you compared today’s Zuckerberg with the Netscape founder in the mid-1990s.

From their arrogant innocence to their visionary qualities to their enfant-terrible charm, it is almost as if they were separated at birth.

But now Andreessen is all grown up and much, much matured from when I covered him. He has become all calm and sage and he even does a very decent blog.

Plus, he has also started and run a number of start-ups after Netscape, giving him deeper managerial experience over the last dozen years.

And, best of all, Andreessen knows the pressure of being the best-thing-since-sliced-bread in the tech sector, and its inevitable downside too.

Overall, a real mentor and partner for Zuckerberg, making a perfect pair of Golden Geeks.

Please see this disclosure related to me and Google.

Here’s a video I did about the first day of DLD–Digital, Life, Design–put on my Hubert Burda Media in Munich this week.

The three-day conference focuses on digital innovation, science and culture. It is chaired by publisher Hubert Burda and serial Israeli investor Joseph Vardi and hosted by Stephanie Czerny and Marcel Reichart.

I was here to interview Kenneth Roth, the executive director of Human Rights Watch. In our session this afternoon, we talked about digital tools to improve reporting on human-rights abuses, the situation in China for U.S. Web companies like Yahoo and Google, along with what techies can do to help in this important arena.

I also hung around the conference and schmoozed, Eurostyle!, with a lot of folks, including Mahalo’s Jason Calacanis, BuzzMachine’s Jeff Jarvis and Vardi.

There is also some video from an interesting social-networking panel, featuring Matt Cohler of Facebook, Lars Hinrichs of Xing and Joanna Shields of Bebo.

Added bonus: I also got the no-comment-hand-over-camera move from Facebook’s Brandee Barker, but a promise of German beer!

Here’s the video:

I know new Yahoo Eurohead Toby Coppel thinks I am too mean to his overlords in Sunnyvale and even emails me about it (I can take it!).

But I am going to surprise him by telling him that I think he is so very clever today.

Why? He signed the obvious deal with social network Bebo to sell its display ads in the United Kingdom and Ireland, renew its search deal and add its excellent Answers product and market a branded toolbar.

Could this be a first kiss in a possible bigger deal, such as a Yahoo acquisition of Bebo, which has been rumored? The fact of the matter is that this pair, despite reports, have never held such talks.

That said, such a purchase would be a good one for Yahoo. Provided, of course, that its CEO Jerry Yang got it into his mind to do something bold and initiate a possible game-changer. (Sorry, Toby, I know you think I am being mean again, but the truth hurts!)

While Yahoo cannot hope to buy either MySpace or Facebook (too pricey), what it could do with a smaller, less expensive and internationally oriented site like Bebo, especially when integrated with some of Yahoo’s better properties, could be interesting and even invigorating for the company.

Bebo, which runs behind powerhouses MySpace and Facebook in the U.S., is a little engine that could in Britain and Ireland, where it dominates the market with 11.6 million members.

The ad deal is exclusive and, while the parties did not say so in their joint statement, is likely to be along the lines of those handing-out-the-candy-to-social-networks guaranteed ad arrangements both Facebook and MySpace have signed (with Microsoft and Google, respectively). This is Yahoo’s first plunge into this game.

Under terms of the deal, Yahoo will sell Bebo’s display ads in the U.K. and Ireland, leaving Bebo to concentrate more on ad sales for its innovative original entertainment offerings, like its “KateModern” and the more recently announced “Sofia’s Diary.”

Yahoo’s own most innovative property, Answers, a community-based knowledge service, will be integrated into Bebo. And the pair will develop and distribute the Bebo toolbar, which will let its users get info about their Bebo accounts when not on the site. Yahoo also renewed its deal to provide search on Bebo.

Neither Coppel, who is managing director of Yahoo Europe, nor Joanna Shield, Bebo’s president of international, were available for an interview, so I politely refuse to quote from their meaningless press release statements.

Still, here’s a post I did about Coppel (pictured here, as he refused to be the subject of my withering video camera lens) after a visit on a recent trip to London, as well as a post I did of Shields and her sharp team at Bebo there too (as well as a video posted below).

Please see this disclosure related to me and Google.

One of the most hot and hyped areas on the Web is in the social-networking arena. And while Facebook and MySpace suck up all the oxygen in this heady room, there are others, including the No. 3 company in the space, Bebo.

While its technical and Web creation offices are in San Francisco, a lot of the commercial action takes place in London, since the United Kingdom and Europe are a big growth area for the company and, most important, where it is running neck and neck with the leaders.

Besides the more worldly focus, Bebo–co-founded by CEO Michael Birch in mid-2005 and funded by Benchmark Capital’s London partners–is trying some different approaches to the space.

Bebo, for example, has interesting new initiatives like its “KateModern” fictional series on the site, a deal with cool gaming site AWOMO (A World of My Own) and a hip look that straddles the chaos of MySpace and the spareness (I would say grimness, but Mark Zuckerberg would call me mean again) of Facebook.

And, of course, because of the landscape now related to social-networking sites, there are the usual takeover rumors for the site, although there is likely a lot more smoke than fire at this point.

Here is a longish video of my visit to Bebo’s London offices and a talk with Joanna Shields, its sharp president of international, a Silicon Valley exec with extensive European experience at companies like RealNetworks and Google. Her insights are well worth the length here, as they provide a window into where the whole sector is headed in content and advertising: