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Mark Zuckerberg
Facebook's mastermind Mark Zuckerberg. Photograph: Paul Sakuma/AP
Facebook's mastermind Mark Zuckerberg. Photograph: Paul Sakuma/AP

Big media's losses on social networking sites break through £1bn barrier

This article is more than 13 years old
Facebook is still a winner but Bebo, MySpace and Friends Reunited show the high price of investing in fickle trends

The media industry has now lost $1.5bn (£1bn) on investments in the social networking craze after AOL sold Bebo last week for a fraction of the price it paid for the business two years ago.

The soured investments in Bebo, MySpace and Friends Reunited underline the hazardous nature of gambling big money on inte rnet businesses. Ever-developing applications and a lack of customer loyalty mean social networking sites can become huge, almost overnight, and crash just as quickly when the next big thing comes along.

AOL paid $850m for Bebo, which had proved popular among younger users in Britain. After a collapse in profits and the failure of the networking site to gain traction in the US, it was sold at a "fire sale" price rumoured to be below $10m.

The American internet company, which has struggled to reinvent itself in the wake of its former dominance as a dial-up subscription service,internet service provider, has not been the only big media concern to get its fingers burned.

In 2005, as it began to embrace digital media, Rupert Murdoch's News Corporation, which also owns the Sun, the Times and Fox Broadcasting, spent $580m on MySpace. Last year, the media group took a $450m impairment charge against the business.

Also in 2005, ITV paid £175m for Friends Reunited, only to watch users abandon the site as more sophisticated, and sophisticated alternatives began to appear. It eventually sold the business for £25m last year to DC Thomson, publisher of the Beano.

Each of these sites has been overshadowed by the rise of Facebook, launched from a Harvard dorm room in 2004 and still privately owned. According to reports on Friday, its revenue more than doubled last year to $800m. The site is closing in on almost half a billion users and attracting big-name advertisers .

Ian Maude at Enders Analysis said: "Barriers of entry online for new entrants are very low and so if someone comes along with a better idea, it's very hard to protect against that.

"Facebook is still growing and making smarter moves. It is also much more appealing to a wider audience. But someone could come along with a better idea tomorrow and eat Facebook's lunch.

"This is an intensely competitive market. It's not like signing up to Sky, where you have a commercial relationship. If you see something better, you can click and go elsewhere. You can build an audience very fast online but you can lose it very quickly as well. You have to keep investing in technology."

MySpace has cut hundreds of jobs and last year replaced its co-founder, Chris DeWolfe, as chief executive. His successor, Owen Van Natta, lasted less than a year. However, in 2006,, Murdoch was wily enough to sign a three-year contract with Google to sell advertising on the site. The deal, which expires this month, promised $900m in revenue if targets were met.

Maude notes that the two most successful internet businesses in the sector, Google and Facebook, have stayed independent and that studies suggest mergers and acquisitions don't work. "If you get sucked into a corporate bureaucracy and strategy, it almost certainly leads to a dilution of the business," he says. "AOL has destroyed the value of all the companies it has acquired. Mark Zuckerberg [Facebook's founder] has made choices that have enabled him to stay in control. But even then, there is no guarantee of success."

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