Fail: AOL Makes $850 Million Bet on Engagement Advertising

Posted on March 13, 2008
Filed Under Marketing 2.0 |

Even Google can’t monetize social networks. But that hasn’t stopped AOL from making an $850 million bet on social networks as an advertising platform as it was that AOL has acquired popular social network Bebo. Bebo has approximately 40 million users and is most popular in the UK.

As reported by Allen Stern at CenterNetworks, during AOL’s conference call, questions were asked about advertising and how AOL planned to deal with the fact that most social network users just don’t seem to be interested in the advertising. The response: AOL will use “engagement advertising.”

Is AOL incredibly brilliant or incredibly stupid? Probably the latter.

While we don’t have many details yet about what engagement advertising specifically entails in this case, I think it’s perfectly safe to predict that it will fail for AOL. Social networks are not ideal advertising platforms for a number of logical reasons and it reflects in the .

A few things I think are worth noting based on Allen Stern’s conference call notes:

While I don’t doubt that there are potential integration synergies between ICQ and AIM as noted by AOL, they’re not worth $850 million, and I question just how strongly they can be leveraged to real effect. I’m just not sure what it really does for the end user and I’m just not sure what it really does for AOL.

It will be interesting to see how many changes AOL is compelled to make as it implements these integrations and tries to better monetize a property that was almost certainly facing the same monetization difficulties of its much larger competitors.

When News Corp. purchased MySpace, it was able to withstand any temptation to make drastic changes. Will AOL have the common sense and wherewithal to do the same? It will be interesting to find out.

Kudos are, of course, due to Bebo’s founders and team for selling a Brooklyn Bridge to a company that is challenged by “intense pressure from Wall Street, slowed revenue growth and apparent management dysfunction.” Coupled with the troubles other social networks and the wider economic landscape and I think it’s hard to argue that AOL couldn’t have picked a worse time to overpay for a company that offers nothing truly innovative and may not have long-term staying power.

AOL’s prospects with Bebo also don’t look too positive when one considers that the two companies which have arguably made the poorest investments in social networks - Microsoft and Google - reportedly passed on Bebo. And most importantly, the company that has arguably made the best investment in a social network - News Corp. - wasn’t interested either. So AOL gets stuck with something the top players didn’t want and thinks it won a prize. What else is new?

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2 Responses to “Fail: AOL Makes $850 Million Bet on Engagement Advertising”

  1. Commoncents on March 13th, 2008 4:50 pm

    There seems to be a pattern here that is fueled in part by the corporate model which forces corporate execs to continue to satisfy impatient shareholders with ever rising quarterly returns. In an environment where retrenchment and reaccessment is warranted the pressing need to maintain your CEO’s corner office and perks can only be satisfied if you keep feeding the monster. When you are in a position of really calling the shots like Ruppert Murdock, you make much smarter decisions when the board is not breathing down your neck to constantly beat last years figures.

  2. Sally Wu on March 13th, 2008 9:43 pm

    I think AOL’s aquitision of bebo portends the end of bebo…


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