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Social networking duds expose pitfalls of business

The media industry has now lost $1.5 billion (Rs.6,800 crore) 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.

business Updated: Jun 21, 2010 23:49 IST

The media industry has now lost $1.5 billion (Rs.6,800 crore) 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 internet businesses.

Ever-developing applications and a lack of customer loyalty mean social networking sites can become huge, almost overnight, and crash just as quickly.

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 said to be below $10m.

The US Internet company, which has struggled to reinvent itself in the wake of its former dominance as a dial-up subscription service, 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 spent $580m on MySpace. Last year, the media group took a $450m impairment charge against the business.

Also in 2005, the UK's ITV paid 175 million British pounds for Friends Reunited, only to watch users abandon the site as sophisticated alternatives began to appear. It eventually sold the business for one-seventh of the costlast year to publisher DC Thomson.

Each of these sites has been overshadowed by the rise of Facebook. “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,” said Ian Maude at Enders Analysis.

“This is an intensely competitive market.”