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AOL's Armstrong: Bebo deal 'really fell apart'

He wasn't yet CEO of AOL when it blew $850 million on Bebo two years ago, but now he has to own up to one of the digital-media industry's biggest acquisition messes.

NEW YORK--AOL CEO Tim Armstrong wasn't yet at the company when it paid $850 million for social network Bebo two years ago, a purchase that's now considered to be one of the biggest tech industry M&A blunders of the past decade. On Tuesday, onstage at the TechCrunch Disrupt conference, Armstrong said, "I don't know whether or not I would have bought Bebo. Looking backward, the answer's no, but in that time period with what was going on, maybe."

Indeed, at the time, would-be Facebook rival Bebo was extremely popular with teenagers in the U.K. and Ireland, and AOL saw it as a way to expand internationally as well as to gain a foothold in the fast-expanding social-media business. But Armstrong said that the exorbitant price tag itself got in the way from the start since it made expectations so high. "Bebo was a major distraction for the company," Armstrong said. "Every meeting I went to, everyone was talking about spending $850 million, that it wasn't really working out that well." Bebo wasn't a bad product, he insisted, but "the execution piece of it really fell apart."

Under Armstrong's tenure, AOL has been attempting to refocus on becoming a media and publishing powerhouse, expanding the Weblogs Inc. blog network (a purchase from 2005) into the company centerpiece, launching content clearinghouse Seed.com and acquiring local news service Patch (a prior Armstrong investment). The results, thus far, have been inconclusive as the company's revenues have yet to perk up.

"Candidly, Bebo did not fit in that strategic range," Armstrong said Tuesday.

AOL confirmed last month that by the end of May there will be a decision on whether AOL, which just celebrated its 25th birthday this week, would sell Bebo to another company or shut it down altogether.

On a side note, there has been at least one bright spot to Bebo's sale: Husband-and-wife founders Michael and Xochi Birch have become active philanthropists as a result, like when Michael Birch matched a $1 million donation to fund clean water infrastructure in developing countries last winter.