Bought by AOL for $850m and sold for less than $10m, Bebo finds new owners

AOL has offloaded Bebo, the social networking site that once threatened the dominance of Facebook in the UK, for a tiny fraction of the $850m (£575m) it paid for the company two years ago.

The exact sum of money that changed hands in yesterday's deal was so small that AOL did not have to report it. It is understood to be below $10m, putting the original acquisition in contention for the highly competitive title of worst purchase by a major internet company.

Bebo's new owners are Criterion Capital Partners, a little-known venture capital outfit based on the US West Coast, and a small-time New York technology entrepreneur, Richard Hecker.

Tim Armstrong, AOL's chief executive, claimed that the new, young owners were, "specialists in facilitating growth plans and turnarounds, and well placed to drive Bebo's effort to strengthen its foothold within the highly competitive social networking arena". The deal at least gives Bebo a shot at recovery, since AOL had warned that it would shut the business down if it could not find a buyer.

"The young, highly active user base, revenue history, presence in countries throughout the world and solid technical infrastructure make it an attractive media platform both as a standalone entity and in the context of our broader investment objectives," said Adam Levin, Criterion Capital's managing partner.

Bebo was founded by British computer programmer Michael Birch and his wife Xochi, an American he met in the bar of Imperial College, London. The couple had moved to California in 2002 and launched Bebo in January 2005. They bought the name, an acronym for "blog early blog often", and just one year later it was receiving more hits in the UK than Amazon or the BBC website.

AOL hoped that a service which had proved so popular in the UK would take off to a similar extent in America. However, users have been deserting it for Facebook. Worldwide, the site shed 10 million users over between December 2008 and February of this year, falling to 12.7 million users. Facebook, by comparison, had 462 million.

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