Bebo's founders talk about selling their three-year-old company to AOL for a princely sum -- and what they plan to do next
The tech world was abuzz in May when AOL acquired Bebo for $850 million. If you've never heard of the company, you're hardly alone. Bebo is a solid but second-tier social network in the U.S. in terms of traffic -- the site trails MySpace and Facebook by a considerable margin. Bebo is, however, huge in Britain, where co-founder Michael Birch was born, and that seemed to be enough for social-media-starved AOL to shell out a huge sum for it. After paying off their investors, Birch and his wife and business partner, Xochi, pocketed more than $500 million. Not bad for a three-year-old company. The Birches recently spoke with Inc. reporter Jason Del Rey.
How did the sale come about?
Michael: We'd been approached by various companies, and we'd always said no. But in December, we received quite a few inquiries, and we reevaluated. Bebo has always been a lot more successful in the U.K., and although the U.S. is our next-biggest market, we need to grow in the U.S. The combination of AOL's strong presence in the U.S. and its product AIM, which is the No. 1 instant messaging application in the U.S., made us think that AOL and Bebo could feed off each other. AIM's demographic is very similar to Bebo's, so we felt there was a great opportunity to cross-promote.
Many people were surprised that AOL paid $850 million for Bebo. Were you?
Xochi (pronounced so-chee): Obviously, it's a big number, no doubt about that. But we weren't surprised by it. With our growth in the U.K. and position in the U.S., we wouldn't have let the business go for less.
Do you worry that some of Bebo's employees might feel that you sold too soon?
Xochi: We were very open and honest, and everyone knew when they joined the company that we were majority owners. Also, I believe the employees were happy with the deal and what they received from it. All of them were fully vested.
Why is Bebo big in Britain but not in the U.S.?
Michael: The primary reason is that we entered a very competitive market in the U.S., whereas only maybe 10 percent of our target market in the U.K. was using social networks when we started. So it wasn't an entirely virgin market in the U.K., but the challenge there was to get someone to use a social network for the first time. In the U.S., the challenge was trying to get people to switch to Bebo from another social network.
Did you worry about lagging too far behind Facebook and MySpace in the U.S. in terms of traffic?
Xochi: I think with any business, you always strive for more. We would like to see Bebo become a stronger contender. That said, we aren't disappointed. By the time we launched, in 2005, a lot of other social networking sites had gained traction in the U.S. So for us to go from nowhere to where we are now, we think we hit our goals.
This was your sixth business in nine years. Did those earlier businesses inspire Bebo?
Michael: We definitely came away wiser from one venture to the next. Xochi and I started doing websites in 1999. Three of them folded, and three were successful, and we still own one of them, BirthdayAlarm, an online greeting card company. One of them was a social network called Ringo, which we sold in 2003 for a few million because we were having some financial problems. I had a lot of seller's remorse about Ringo. It had the opportunity to be a really early player in social networking, so it could have led into something big.
Xochi: I actually don't have any seller's remorse with Ringo. It was really a difficult time for us: We were broke, with no idea where the next rent check was coming from, and working very hard to support Ringo, because it was growing like crazy.
If Bebo was intended to be a second pass at Ringo, why sell it after only three years?
Michael: With all the start-ups, it's been a nine-year case of burnout. We have two children, who are 7 and 9, which are amazingly fun ages, and another on the way. We felt we were, to a degree, missing out on their prime years.
What was the biggest mistake you made with Bebo?
Xochi: We were too slow to hire in the early days. We were so used to doing everything ourselves, and handing responsibility to others can be a difficult process for entrepreneurs. When Bebo was only six or eight people, it missed out on some business development deals because it didn't have the manpower.
Michael: The current plan is to take a couple of years off. I do want to do start-ups again, but with a start-up, there's no halfway. Either you work like crazy, or you don't do it. I also want to do something that's not about making money. I want to contribute to a nonprofit venture in the U.K. and encourage more entrepreneurship there. And I'll do more angel investing and advising.
Xochi: I'll do more angel investing, too. I like the idea of rooting for a company to do well without actually having to work there on a daily basis.
Have you bought any toys since the deal closed?
Xochi: We bought a car in San Francisco and a car in London. In San Francisco, it's a silver Mercedes-Benz S-Class AMG -- very predictable. In London, it is a black Land Rover Defender, which was a boyhood favorite of Michael's. But the Mercedes rides a lot better.