AOL bought Bebo for $850M — and sold it back for $10M two years later

In March 2008, AOL acquired Bebo, a UK-based social networking site popular with teenagers, for $850 million. At the time, Bebo was the most visited social network in the UK, ahead of Facebook and MySpace. AOL saw Bebo as its entry into the social networking market.

But AOL mismanaged Bebo. The integration with AOL's platform was clumsy, the product development stalled, and Facebook's rapid growth in the UK overtook Bebo within a year. AOL did not invest in Bebo's infrastructure or features, and the site's user experience deteriorated.

In June 2010, AOL sold Bebo back to its founders for $10 million — a 98.8% loss on the $850 million purchase price. The case illustrated how an acquirer can destroy a social network's value through neglect and mismanagement, and how the network effect works in reverse: when users leave, the remaining users leave faster.