Facebook Wins: AOL Throws in the Towel on Bebo

AOL (s aol), a little over two years after paying $850 million for popular UK social networking site Bebo, has admitted in an internal memo to employees that the business is “declining” and that it simply doesn’t have the resources to invest in the site while waiting for its numbers to turn around. The memo says that the company will be actively looking for buyers for the Bebo unit, and expects to make a final decision as to its fate by the end of next month. AOL plans to file financial details with UK regulators tomorrow stating that it’s “currently evaluating strategic alternatives with respect to Bebo,” which could include a sale or shutdown of the company.

More than anything else, this move by AOL makes it obvious that a) the purchase of Bebo was an expensive mistake, and b) Facebook has effectively won the social networking war. The text of the memo is as follows:

The strategy we set in May 2009 leverages our core strengths and scale in quality content, premium advertising and consumer applications, positioning us for the next phase of growth of the Internet. 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 and, as a result, would require significant investment in order to compete in the competitive social networking space. AOL is not in a position at this time to further fund and support Bebo in pursuing a turnaround in social networking.

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.

When AOL, then still part of Time Warner (s twx), bought Bebo in 2008, AOL Chairman and CEO Randy Falco talked about how the acquisition was just like Microsoft’s (s msft) investment in Facebook in that it was “the perfect complement to AOL’s personal communications network and puts us in a leading position in social media.” Falco said the purchase would allow the online company to leverage its social platform across its combined global audience and position it “to offer advertisers even greater reach and marketers significant insights into the desires and needs of consumers.”

That obviously never came to pass. The advertising business AOL was relying on got sucked into the economic downturn along with everything else, and there were rumors as far back as last year that AOL was looking to sell the company. At the time it was acquired, Bebo said it had more than 40 million members and was one of the leading social networks in the UK, as well as number three in the U.S. The company said that its users were heavily engaged, viewing an average of 78 pages a day (although there were reports that the network had the worst uptime record of any major social media site).

Former Bebo CEO and AOL President Joanna Shields left to join Facebook joined Facebook several days ago as VP of sales and business development in Europe.

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Post and thumbnail photos courtesy of Flickr user Hans Gerwitz