Even before Jeff Bewkes took over as Time Warner's chief executive earlier this year, fixing the media conglomerate's troubled internet division was his top priority, writes ANDREW EDGECLIFFE-JOHNSONand JOSHUA CHAFFIN.
Yesterday's $850 million (€545 million) acquisition of Bebo marked the latest investment he has had to make to redefine AOL's business model.
As AOL weans itself off its early subscription access model to become an advertising-supported portal, its executives badly need to transform revenues in the way they said they could yesterday by applying their technology to Bebo's community.
If they do so, they will be breaking the mould. No other portal has succeeded in social networking, a phenomenon which stole customers away from a previous generation of communication tools exemplified by AOL's AIM messaging service.
Randy Falco, AOL's chief executive, insisted yesterday that AOL could become "a social media powerhouse" through the deal, as Joanna Shields, president of Bebo, hailed a new era where the "social web" took centre stage after the period in which technology drove the internet's development.
Mr Falco hinted yesterday that the deal served another purpose: the underlining of his parent company's commitment to AOL. "It's one more piece of evidence that Time Warner has been incredibly supportive," he said. "We feel very good about our continuing relationship with Time Warner." One investor agreed: "It does indicate that they're more inclined to keep this asset than to separate it."
Nonetheless, some people close to Mr Bewkes suggested that the acquisition should not be taken as confirmation that he was set on retaining AOL. They argued instead that by fixing it up, like an old house, Mr Bewkes would give himself more options in the future.
Time Warner had already spent $2 billion over three years to bolster AOL's transition, snapping up behavioural targeting and contextual advertising specialists to add to Advertising.com, its third-party display advertising network.
However, AOL's advertising growth began to weaken late last year as customers defected to Google for search, and its troubles were highlighted earlier this week when top executives were dismissed from Advertising.com. The company expects another quarter of flat growth ahead.
AOL is considered the most important variable in reviving Time Warner's depressed shares.
This has become more urgent since Microsoft made its unsolicited $40 billion offer for Yahoo, a deal which would eliminate two potential suitors for AOL while creating an even more powerful competitor. - (Financial Times Service)
