Bebo sale to AOL nets founders a fortune in 3 years

British internet entrepreneur Michael Birch was celebrating yesterday as Bebo, the social networking website he founded three years ago, was sold for $850m (£417m) to internet company AOL.

Bebo is the world's third-largest social networking website, behind MySpace and Facebook, and claims more than 40 million users. It is strongest in Britain, where an estimated 11 million people - including many teenagers - use it to communicate with each other and keep up with their friends.

The deal, which has netted a fortune for Birch and his wife Xochi, was hailed by AOL as a potential way to enhance its internet business, which has struggled in recent years. "This is a tremendous acquisition and one I think is game-changing for AOL," said the company's chairman and chief executive, Randy Falco. "Bebo will be the cornerstone of our strategy."

The website is hugely popular with younger internet users, and is seen as a potential goldmine for advertisers trying to connect with the notoriously hard-to-reach teenage market. This - along with its international reach and strong links with traditional media companies - made the deal too good to miss, said Falco.

It is not clear whether the site's users will feel as happy about the change, however, and some experts wondered whether AOL might try to cash in on the site's audience too quickly.

"The smartest thing AOL can do is to leave Bebo well alone in terms of management and day-to-day operation," said Mike Butcher, the editor of technology news website TechCrunch UK. "If they are dumb they'll plaster Bebo in adverts and the users will run for the hills."

Similar fears were expressed when MySpace was acquired for $580m by Rupert Murdoch's News Corporation in 2005. The site continued to grow, though recent figures indicate that it appears to have peaked at about 110 million users.

Last year the company was rumoured to be the subject of a $1bn acquisition attempt by Yahoo, the troubled internet company which is fighting a takeover move by Microsoft.

With the internet crowded with social websites and so-called Web 2.0 companies, Bebo made its mark by forming partnerships with established media such as the BBC and MTV as well as running pioneering internet shows such as online drama Kate Modern.

The move could be considered another success story for Britain's growing internet industry, which last year saw online music service Last.fm sold to American media company CBS for £240m. Although Bebo was started in San Francisco by Birch, it is run largely from offices in London and has about 100 staff in the US and Britain.

Bebo was the third internet company started by the Birches, and they are expected to leave shortly after the deal is finalised next month.