I waited a week before writing this, why? Well I was busy, and I wanted things to settle a  bit before I kicked up the dust again. But the AOL buy of Bebo is a much bigger deal than we are all realizing or giving AOL credit for. So the $850 Million might seem like an obscene price to some (lest we forget some other large purchases of the last few years make this pale in comparison), and to others it is simply confusing. How could AOL plunk down the equivalent of $20/user on what is ultimately a 3rd place network in the US?

Why the numbers make sense.
AOL’s mostly cash deal gives them an instant boost on the social network scene where their AIM pages project died after not receiving much if any fanfare (AOL seemingly didn’t bother informing their AIM users about it).  It gives AOL a big foothold overseas, where it is still weak compared to its competitors. It also gives it a big chance to cross promote its newly acquired service via AIM, AOL.com, netscape.com and the hundreds of other content properties they own.  For AOL it might be a challenge to recoup the initial investment fast, but they have a much better ability to monetize those page views than most of the players.

Remember AOL owns advertising.com and its whole PlatformA initiative encompasses many advanced ad targeting services that were just waiting for access to billions more in page views to data mine.

What you are all missing.
So AOL now owns 40 million user profiles, now what? Well one thing that people are forgetting is that Bebo has built a fairly robust representation of the social graph on their site. This data which is a goldmine for marketers is probably the second best set of social graph data on the web behind Facebook’s.  So if you think about it, they got a data set about half the size of Facebook’s for about 1/15th the cost.

Stop looking at the battle, and focus on the war.
Folks, the issue isn’t about social networks directly, its about behavioral advertising. Understanding what people want by observing them and then serving both contextual and targeted advertising to them as they search/surf through their properties.  We as a collective whole keep forgetting this about Yahoo (don’t forget they have 400million user profiles, maybe more) being one of the kings at this, but thats another story entirely.  The behavioral battle is being waged on all fronts, but what it ultimately needs is enough  page view inventory to be truly useful to the data crunchers, and thats what a few billion page views a day will give you if you’re AOL/Bebo.

So where do we go from here?
Well I really see AOL trying to promote the heck out of Bebo, and hopefully working on improving their infrastructure substantially. But the first thing we’ll see is Bebo beating the 2008 earnings estimates they had set forth simply by having AOL up their CPM rates from $.50 to $2.  If Time Warner wasn’t such a bad fit with AOL, I would almost recommend buying AOL right now, but then again, maybe AOL + Platform A will be spun off, which would definitely change the game.