Michael Birch has no intention of relaxing on the back of the $850 million he received for his business Bebo. Where is the fun in that, he asks
SO YOU CREATE a wildly successful social network site, make it profitable, it becomes the number one network in many geographies, and then you sell it to an internet giant for an insanely large amount at what turns out to have been the perfect moment. What do you do next?
For Bebo co-founder Michael Birch, who sold the site to AOL for about $850 million (€67 million) in 2008, just as Facebook was beginning to eclipse it, you get right back into the fray. Albeit at a more relaxed pace for the almost-40 year old (he crosses that milestone next month), and without the same financial pressures. And keeping in mind that you had open heart surgery only months after making your big sale. A leaking valve that he’d known about for several years suddenly necessitated surgery, an event he quietly noted by changing his status on his own Bebo page to state: “I survived open heart surgery! Woohoo!”
The amiable, chatty Birch, who spoke at the Dublin Web Summit earlier this month, says the speed at which Bebo took off and the rate at which it grew didn’t startle him. “No, it didn’t surprise me. Everyone’s using social networks. It has become as utilitarian as e-mail.”
He is irked by some of the commentary and perceptions about the social media sector. “I’d say there’s pretty unfair criticism,” he says. “Lots said [social networking] was a fad. But look at sites like Twitter – it’s satisfying a genuine human need to communicate and socialise.” It’s a fast-moving sector, too. Companies in the field “all seem to evolve all the time. You think Facebook has sewn it all up and there’s no room for anyone else – then along came Twitter.” Linked-In is growing rapidly and there are new challengers in the business space, such as Yammer.
Birch made a personal fortune off the relatively quick turnaround of Bebo, which was at least modestly profitable, according to analyst estimates at the time of its sale to AOL. Other social networking entrepreneurs have chosen to hang onto their companies, even though some, like Twitter, have struggled to find an immediate business model. The public perception certainly is that social media are a sector difficult to monetise, and an entrepreneur’s best opportunity is to sell fast if at all possible.
But Birch disputes that view. “There’s always a long-term opportunity for some companies,” he says, if only for a select number. However, that’s no different from the business landscape in any sector. “In the technology industry, very few companies ride it all the way through,” he notes – most are acquired, merge, or fold. In the social media sector, several companies are clearly going for the long-term play, he says. “Facebook has ridden it through – and it’s likely they’re going to IPO in the next year or so. Twitter – they may sell. Facebook is making a huge amount of money. Now, they’re spending a huge amount too, but they’re a big company. And I think a lot of people create good healthy companies, and decide to sell out.”
As Bebo was profitable, why did he decide to sell? “We had a variety of offers on the way up to where we actually sold. At the time it felt risky for us because Facebook was on the way up and was bigger than us.” And of course, AOL made an offer that any entrepreneur would have found hard to refuse. But did he feel the social profile space needed to be conceded to Facebook?
“I did feel, and still feel, there was the space for a good competitor, that could provide a combination of the quality of Facebook with the fun of MySpace. But it was certainly a risk. We also didn’t predict the severe economic downturn.” So exiting at the point when the founders did – Birch, his wife, and his brother owned 70 per cent of Bebo – turned out to be a brilliant move.
But AOL now seems likely to shut Bebo down completely, having failed to re-energise the community or develop the special niche for it that Birch envisioned. Was he able to walk away from emotional connections to the company, or is it difficult to see the company floundering and threatened with closure?
“In some ways it is. I’d rather see it not close down, and see it bought and grown as a healthy business.” AOL faced a challenge to blend Bebo into an existing offering. “It was a tough one and they tried to integrate it into AIM (AOL’s instant message service) but it didn’t gel. It’s hard to take a social network site and drive traffic to it. If you look at successful social networking sites, they all grew organically. At the same time, the world economy crashed. And AOL changed the management of Bebo. The [management] people who originally had bought into the site, left.”
Birch says investments and a new series of companies are his business focus these days, with investments done either on his own or with a small partnership of angel investors. He’s made about 15 investments in the last couple of years, primarily small social media start-ups, including stakes in MyStore.com and Goodreads.com. One of his latest is Punktilio.com, founded by Bebo’s former head of music, Hal Stokes. Birch thinks companies need a specialist agency to help them get their branding and advertising right on social network sites.
“There’s a feeling among companies that they have to be involved in social media, but they don’t really know how to do it. They feel they need to be there and in a way they do need to – but it’s not quite so obvious how, on social networks. The whole point is, users engage with a network. The brand needs to engage the user. A banner ad doesn’t really engage.”
Social networks, however, do tend to create new advertising possibilities for companies of all sizes, compared to costly platforms like television. “I think it opens up an opportunity for smaller businesses, whereas it’s hard to have any presence on TV. They can spend reasonably nominal amounts of money. It’s a reasonably level playing field. And I think a small brand can communicate at the same level as users, rather than elevating themselves above [as with TV)]. I don’t think people like to be spoken at. They like to feel companies are talking to them, not at them.”
So where is social networking going? More mobile, certainly, even though Birch says that wasn’t really on the immediate agenda when Bebo began. “When we started it, smart phones were around, they just weren’t especially smart. But we definitely foresaw mobile is where it would be.”
Birch also has set up a company called Monkey Inferno. “It’s really a company that incubates other companies,” he says, and has five parallel projects on the go. He plans to have about 14 engineers working on his various projects in the near future.
Monkey Inferno is based in San Francisco, where Birch and his young family spend most of their time, as well as taking three months annually in his native UK. He’s definitely a San Francisco man, only venturing down to Silicon Valley a couple of times a year, he says.
His latest venture is a not-yet-launched political discussion site called Jolitics.com – which will “take a little bit of a twist on politics. It’s a political debate site and is quite original in the way it has been implemented”. It is coded to allow “the smartest voices to rise” to avoid the common problem on debate sites of the debate being drowned out by unproductive bluster and deliberate attempts to hijack or close down discussion. But he won’t explain how or give further details in advance of the site launch. Jolitics should be up and running across different geographies by the end of summer, he says.
It’s clear the physics graduate had no intention of just quietly enjoying his personal fortune. “One reason to get out was to do more things. I had no intention of sitting back and doing nothing,” he laughs. What motivates him? “It’s just pure challenge.”
