AOL to buy social network site Bebo

Time Warner subsidiary AOL said yesterday that it would acquire the third-largest online social network Bebo, which ranks behind MySpace and Facebook for $850 million.

AOL sees the acquisition as a potential expansion of  its online advertising business as well as reach out to Bebo's predominantly younger audience.

Bebo is a rapidly growing social networking site, which claims more than 40 million users. It is the most popular social network in the United Kingdom with an estimated 11 million users, mainly teenagers use it to communicate and keep up with their friends.

"This is a tremendous acquisition and one I think is game-changing for AOL," said the company's chairman and chief executive, Randy Falco. "Bebo will be the cornerstone of our strategy."

The all-cash deal comes during a period when major media and technology firms are looking to expand into social networking, a market that could draw an estimated $1.6 billion in advertising in the United States in 2008, according to research firm eMarketer.

Despite plans to entice online advertisers with Bebo's young audience, it remains unclear whether AOL or its other rivals can leverage a social network's members to pay back such high investments. eMarketer expects advertising on social networking sites worldwide to increase from $2.15 billion this year to $2.89 billion in 2009.