In a report about the future of social networks published in October 2007, Datamonitor predicted global revenues from social networking are set to reach USD$2.4 billion by 2012. It also went on to say that as the market became more crowded, it would be harder for social networking sites to remain independent and that acquisition would solve scalability issues, improve content and search capabilities, and extend visibility and reach. This acquisition gives Bebo increased resources, Time Warner a new channel for its content, and AOL a new challenge in a period of intense transition. If the acquisition goes well, Bebo and Time Warner together could develop a partnership to rival that of MySpace and News Corp. However, the challenges of switching from a subscription to a fully advertising-supported revenue model while breaking new ground in social network monetization, could overwhelm AOL.

AOL’s successful AIM client and access to Time Warner’s content library are potential complements for Bebo’s highly media-friendly service

The significant purchase price makes it unlikely that AOL bought Bebo simply to gain access to Bebo’s current revenue stream. It is more likely that AOL bought Bebo in the hopes that AOL’s resources and Bebo’s savvy and large user population can give AOL access to new populations and new opportunities for advertising.
 
In addition, AOL has stated an intention to move aggressively to establish itself internationally. Bebo, whose largest user population is based in the UK, may help AOL gain a deeper understanding of the markets they intend to reach.
 
Stickiness is currently the challenge for the big generalist social networking services like Bebo, Facebook, Hi5, and MySpace. All of them have an incentive to provide their users with features that will encourage those users to engage more deeply with one another. As a result, many are looking to integrate IM clients. If AOL and Bebo can integrate AIM effectively, it will help Bebo stay competitive.
 
Social networking services are also looking to increase stickiness by providing engaging content. MySpace has been a particularly vivid example of late. Bebo has a significant user population and an Open Media platform which demonstrates both willingness and proficiency in integrating professionally made content into a user-generated and manipulated environment. With the acquisition, Bebo’s potential ability to compete strengthens. Bebo users are already enjoying content from a number of big content providers; this merger should offer Bebo the opportunity to interweave professionally generated content with their service in increasingly innovative ways.

Both Time Warner and AOL have incentives to get into social networking

This merger marks AOL’s commitment to its switch to an advertising-centric revenue model, as well as representing a stake in the ground in social network advertising. It also shows Time Warner’s continued willingness to explore Web 2.0 methods of distributing its content and following young viewers onto the Web.
 
It is logical to infer that Bebo has been purchased in part to give AOL and their advertising platform an opportunity to explore advertising on social networks. Bebo is currently contracted with Yahoo for its advertising; how AOL will resolve this relationship is not yet apparent.
 
Best practices for monetizing social networking services have not yet been established, even as the biggest organizations in content provision and Internet search are focused on the problem. Yahoo, Google, News Corp, Disney, Nokia, and Microsoft all have significant investments in social networking properties. With the purchase of Bebo, Time Warner has formally declared that it, too, sees the potential. Since Bebo has an extremely successful record of partnering with big content providers, it is conceivable that this could transition to a productive relationship with Time Warner analogous to MySpace’s relationship to News Corp.

It is an open question whether AOL will monetize social networking effectively with their Platform A advertising platform

AOL was the most publicized pop of the dot com bubble. This acquisition will show what they have been able to draw from that experience. Their first challenge will be managing the integration with Bebo while simultaneously going through a period of intense internal transformation.
 
Reports of layoffs have been emerging as AOL abandons the subscription ISP business, which was once its core and primary revenue generator, and shifts to a revenue model based entirely on advertising. This decision is appropriate for today’s Web but they have not yet had time to develop an extensive track record as advertising providers. To move into the undeveloped world of social network advertising, at this stage in their internal restructuring, is daring.
 
The market will be watching closely to see how AOL and Bebo master both the technical and cultural challenges of integration. Once the question of Yahoo’s relationship with Bebo has been resolved, AOL and Bebo face two potential pitfalls in which their joint futures could be lost. The first is simply that AOL fails to successfully monetize Bebo’s user base at a level which justifies their investment. The second is that AOL efforts to increase Bebo revenue are seen as intrusive and alienate Bebo’s user population. The culture of AOL’s portal itself is more explicitly commercial than that of the Bebo social networking service; an attempt to transfer elements from one to the other indiscriminately will backfire.

The report The future of social networks in Europe (Databook)