AOL Buying Social Networking Site

UPDATED: AOL has announced that it is purchasing Bebo, the British social network, for $850 million in cash.

“Bebo is the perfect complement to AOL’s personal communications network and puts us in a leading position in social media,” AOL Chairman and CEO Randy Falco said in announcing the acquisition.

“My vision for AOL is to create a global, market-leading, ad-supported digital media company,” Falco said. “From our perspective, Bebo is the best social media asset out there.”

As it prepares to strip away its waning dial-up business, AOL is looking to accelerate its transformation. With the acquisition of Bebo, AOL will have a global social media network of about 80 million unique users, the company said.

At the heart of the purchase is the potential to monetize the social networking space. Falco said that Bebo would become the cornerstone of its efforts to become a “social media powerhouse,” pairing the network’s reach and engagement with AOL’s Platform-A advertising network.

Bebo President Joanna Shields said that with an average of about 40 minutes per visit, Bebo can promise advertisers a highly engaged audience. The acquisition will accelerate the “growth, engagement and monetization of one of the world’s most engaged online communities,” she said.

Bebo has more than 40 million members worldwide, and has the third-largest audience of social networks in the United States, behind only MySpace and Facebook.

“The social media space is in its infancy,” AOL President and COO Ron Grant said. According to Grant, with the Bebo acquisition the company plans to “supercharge the monetization of this audience with Platform-A.”

“Together, we’ll be creating and monetizing the social Web,” he added.

Citing ComScore figures, AOL said Platform-A is the leading online advertising network, reaching 167 million unique visitors in February.

AOL has built Platform-A by recently acquiring a series of advertising companies such as, Tacoda and Third Screen Media.

Falco said with around $1 billion in purchases, Platform-A was a bargain compared with Microsoft’s $6.1 billion purchase of aQuantive and Google’s $3.1 billion acquisition of DoubleClick, which closed earlier this week.

Of course, today’s acquisition nearly doubles the amount spent on Platform-A and invites further speculation that parent company Time Warner (NYSE: TWX) could be positioning AOL for a spin-off as a stand-alone company.

Time Warner has also reportedly been in talks with Yahoo (NASDAQ: YHOO) over a potential combination with AOL to stave off Microsoft’s (NASDAQ: MSFT) acquisition bid.

In a conference call with members of the press, Falco downplayed Time Warner’s designs for AOL, saying only that funding the Platform-A acquisitions and the purchase of Bebo only underscored the corporate parent’s support for AOL’s transformation.

Shields pointed out the synergies of Time Warner allying with Bebo. In November, Bebo launched its Open Media program, allowing its members to embed content from CBS, ESPN, MTV Networks and other partners into their profiles.

Through initiatives such as Open Media, Grant claimed that Bebo has led the way in engagement marketing in the social Web. Bebo already has ongoing relationships with major advertisers such as Procter & Gamble, Nike and Apple, Shields said.

Asked whether alienating members of the community with a barrage of ads was a concern, Shields said that Bebo places only one ad per page and is careful not to disrupt the user’s experience. At the intersection of social networks and advertising is behavioral targeting — a contentious privacy issue — and the goal of spreading branded messages virally, through the trusted referrals of friends.

AOL also sees in the network an international platform for its popular AIM instant-messaging feature, which it opened to developers last week.

Bebo opened to third-party developers on Dec. 12, announcing its Open Application Platform, to be compatible with both applications built on the Facebook Platform and OpenSocial.

In the next several months, Bebo plans to expand its European presence with the launch of French, German, Italian, Dutch and Spanish versions of the site.

Falco said he expected the transaction to close in about 30 days. Upon closing, Shields will continue to oversee Bebo, Grant reported.

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