David Prosser: Bebo didn't learn lessons of history


Outlook Suddenly, the £145m that ITV lost on Friends Reunited – bought for £170m in 2005 and sold last month for £25m – does not look quite so embarrassing. AOL paid $850m (£560m) for Bebo in 2008. Now it wants out of the social networking business, it's difficult to see it getting even a tenth of that – or even who might want to buy it.

History repeats itself. For more than 15 years, America Online was one of the world's most imaginative companies, reinventing itself at least three times: initially an online games provider, it moved into software and in the mid nineties became the dominant consumer-friendly internet service provider. And then it was subsumed into the Time Warner empire. Innovation died overnight and $220bn of value disappeared.

Bebo was also a pioneer, recognising a potentially profitable gap in the social networking market and growing rapidly as it exploited that niche. Until AOL came along, that is. Buried within the larger company and starved of investment, Bebo had no opportunity to reinvent itself as market trends changed. And AOL certainly wasn't up to the job.

The lesson is clear. One cannot think of a single example where a young business in a new market has prospered after being bought up by a large old-world parent company. These acquisitions never work.

Mark Zuckerberg, the founder of Facebook, the business that has done most to kill off Bebo, has recognised that lesson, turning down generous offers for his company. The founders of Twitter, for now at least, seem to take the same view.

They are wise to do so. An IPO will eventually give senior staff at both businesses a way to cash in on the value they have built. The Google model is the one to follow.

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