James Moore: Bebo's blow-up offers lessons that Facebook must pay heed to

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The Independent Online

Outlook So bye-bye Bebo. If ever you needed confirmation that AOL has the reverse of the Midas touch, it's this deal. The former social networking phenomena that fancied itself as a rival to Facebook when the men with the minus touch came a calling with $850m less than two years ago, has been offloaded for a couple of quid, a packet of chewing gum and some football trading cards.

Of course, they've not disclosed the actual price to spare AOL's blushes, but the rumours suggest that it's less than $10m. In other words, not since the era of the dotcom collapse, when it seemed as if City financiers queued up to hand over truckloads of dollars to any geek with half an interesting idea and a neat line in techno-babble, has a deal gone so badly so quickly.

Of course, when you're faced with a disaster of this scale, the actual price of the junk you're offloading doesn't really matter that much. AOL might just as well have given Bebo away given the huge tax write off it's going to pocket. But America appears to be paying some attention to the World Cup this time around, especially its younger citizens. Perhaps the chief executive of AOL, Tim Armstrong, has some kids who might be interested in those trading cards.

What is more interesting is what a buyer like Criterion Capital Partners (who?) thinks it can do to breathe life into the dotcom dodo it is buying, if that is indeed its purpose. Part of Bebo's problem was that it was deserted by its youthful clients when it became "uncool".

There are numerous reasons for Bebo's demise. Changes at the top of AOL didn't help – as one analyst said, the site lost both support and agility. Its primarily teenage and female client bases are also notoriously fickle. And this is internet land, where what is the next big thing one day is forgotten about the next. Just look at AOL as it continues to limp from one failed new dawn to the next. Is there anyone our there, really, who would miss what was once a technology titan were it gone?

But the main reason for Bebo's blow up has been Facebook. Facebook has FarmVille and other inexplicably popular games, and a host of other add-ons that keep people coming back. More importantly, Facebook has liquidity. If you want to find your friends, the chances are that's where they'll be.

But what has happened at Bebo should still worry Facebook. To make its founders fabulously rich in cash terms (as well as in paper), the big dog in the world of social networking appears to be pursuing the route of an initial public offering. So there shouldn't be much chance of a old, slow moving, dinosaur of a new owner mucking up what has made it good as has happened to so many of its rivals (Friends Reunited, even MySpace).

Facebook, however, could just as easily go down the Bebo route on its own. The site might look like it has traction as one of the dominant forces on the web. It has even surpassed Google in the number of hits (depending on how you chose to categorise such things). Momentum, liquidity and the number one position matter a lot on the web.

But they can still be lost in the blink of an eye, especially if your service is provided for free and you consumers decide that they don't like you anymore. Recently, Facebook has shown that it is anything but immune from own-goals. The holy grail of social networking is to monetise the vast amount of data you hold on your customers. Trouble is, that creates any number of privacy implications and Facebook has not always shown the most sure-footed handling of this very important issue.

It is a major power for now, but if it loses sufficient goodwill there is nothing to stop it from following Bebo down the road to nowhere. As unthinkable as it appears now, Criterion Capital Partners s – or something like it – could easily be picking over another corpse if Facebook fails to learn the right lessons from Bebo's blow up.