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The Birches of Bebo: Timing is all

Rory Cellan-Jones | 08:48 UK time, Friday, 17 December 2010

Who has actually made money from social networking? I mean the real folding stuff, not the theoretical billions that are now supposed to be in the hands of Mark Zuckerberg.

The MySpace founders walked away with a bit of cash after they sold to News Corporation, but I've just met the couple who have made more from the business of sharing social lives online than anyone else.

Michael and Xochi Birch

Michael and Xochi Birch

In a mansion with views across to the Golden Gate bridge live Michael and Xochi Birch, a lovely couple who are the best proof I know that money really can make you happy. Their social-networking story is all about fabulous timing.

A decade ago they were working in London - Michael is British, Xochi American - for insurance companies. Having decided that was not a lot of fun, they took out loans against their flat and moved to San Francisco to live with Xochi's parents while they worked on some ideas for some web companies.

A few years later one of those ideas paid off in the form of Birthday Alarm, an online greetings card site. "Quite suddenly," Michael explained,"we went from making $10,000 a month from it to $10,000 a day."

That gave them the cash to launch an idea that they'd been working on for a while, a social network. "Friendster had launched," Michael remembers. "A friend e-mailed me a link to it, I spent 30 minutes on it, and thought it was the best thing I'd ever seen."

"It really reminded me of Big Brother on the TV," adds Xochi. "You just couldn't stop watching it."

After starting and quickly selling one network, Ringo, they used the money they were earning from Birthday Alarm to launch a more serious effort. They called it Bebo.

It rapidly became a huge hit - not in the United States where they were based but in Britain and Ireland, and in particular among schoolchildren. In fact, the first story I ever did about social networking was about teachers wanting to ban Bebo from schools over concerns about the way it was being used.

The reason it took off in Britain was all about timing. In 2005 Facebook was still only on campuses and MySpace had yet to make much impact outside the US. "We caught up with MySpace in a matter of months," says Michael."I remember speaking to someone from MySpace who said we were this 'annoying thing' happening to them in the UK. In the US we struggled because we had to get people to migrate away from other networks."

Bebo's fortunes peaked in 2007. "For one month we overtook Google in terms of time spent online in the UK," says Michael. But Xochi says they did not feel secure even then. "It really felt like a race - we felt we were racing MySpace and Facebook in the UK and chasing after Myspace and Facebook in the US."

I met the couple in the UK that year and asked them whether there was any truth in the rumours that they were planning to sell the business. Of course not, they told me, we want to keep growing it ourselves. Michael laughs when I remind him of that, and admits: "We were saying to one another we should probably sell it. But you're never supposed to say you're selling a business."

He concedes that the looming threat from the competition meant they needed to get out while Bebo was still highly valued. In 2008, after negotiations with a number of bidders, they sold to AOL for $850m in cash, of which the Birches netted over half. Again, timing was all.

"It was in the right space at the right time." says Michael Birch. "We sold it and then the whole world economy crashed a few months later. So it turned out to be great timing."

Under AOL, Bebo went into a rapid decline. The Birches believe that was partly due to the neglect of the new owners, but accept that it was always going to be hard to compete with Facebook. Then, earlier this year, AOL sold it on to another company for what Michael describes as "1% of what they paid us for it."

The Birches are now rich enough to just hang out with their children at their lovely home, which even features a "London pub" where Michael can act the landlord at parties. But they are still working, setting up a number of web vehicles and one charity venture.

Birch pub

This week they revealed that they had taken a stake in a social-networking business. It's called Bebo, and they say they believe, that under its new owners Criterion Capital it can find a decent niche. "It's going to be about self-expression," says Xochi. "it's going to be about being on a site where your friends are, not your parents."

The original Bebo lost out to Facebook because its young members felt the new network where their older brothers and sisters hung out was more grown-up and cool. Maybe they are starting to think that Facebook is a place where an older generation is always peering over their shoulders. Or maybe not.

Nobody, least of all the Birches, thinks Facebook is going to lose its dominance any time soon. But perhaps there is enough room in the social networking space for some smaller more specialist players. If that does turn out to be true, then the Birches will have proved again that they have an invaluable business skill - good timing.

On my social-networking trip, I'm asking all my interviewees to give a short answer on how social networking has changed their lives. Here's what the Birches said:

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  • Comment number 1.

    I wonder who has lost the most money from social networking. AOL? News International? I expect Facebook will be making money because of Facebook Credits and games like FarmVille.

  • Comment number 2.

    Facebook's dominance definitely means Zuckerberg & co will make real money in the coming years. Even if it say peaks next year and then starts to decline - it will be a long decline from a userbase that will likely reach almost 1 billion.

  • Comment number 3.

    Facebook dominates because it is still actually useful and relatively easy to navigate and use. Others forgot that. When News International took over MySpace it immediately became nothing but an obtrusive advertising platform and it got ever more awkward to use. It didn't provide anything useful to the user. We all went to Facebook instead. Wherever social networking goes in the future, providers must remember that in their money-making, if they forget useability we'll stop using their sites and if the sites don't provide a genuinely useful service, we'll go elsewhere. They must NOT allow their sites to become nothing but platforms for irrelevant and obtrusive advertising.


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