by Charles Orton-Jones - Thursday, 30th August 2007

The craziest thing about the Bebo phenomenon is that half the population is unaware of it. Teenagers are hooked. Twenty-somethings are deserting pubs and clubs to spend the twilight hours hunched in front of their computer screens, emailing other Beboers. But most adults have never even heard the term.

For the uninitiated, Bebo is a social networking website. Users get a homepage, which they personalise with photos, a blog and biographical tidbits. Beboers discover each other’s sites and frenziedly email one another, listing their new friends on their homepage.

An example: Kate Farley, aka Superstar35, is a 17- year-old girl from Poole who likes "netball and dancing" and drinks "tia maria and coke". She’s jazzed her site up with a swirly pink colour scheme and posted a hilariously cheery blog. Visitors can see sixteen thumbnail photos of her friends. There are 50 digital photos that she took at parties, and - a compelling voyeuristic touch this - you can read messages she has received. Maria B tells Kate, "Hiya babe! Luv u toooo! See u on Friday xxx".

If you think Maria looks rather cute, click on her picture and you can check out her homepage. Maybe even send her a message or browse her friends’ sites.

"People who use it spend more time on Bebo than watching TV,2 says founder Michael Birch. He’s not exaggerating. Over 25m people worldwide have signed up. In the UK it is the sixth busiest site - ahead of BBC.co.uk and Amazon - and by December Bebo should have overtaken Google to become the UK’s number one website. In the US, MySpace has already claimed the top slot, shooting past Google and soaking up almost five per cent of internet visits.

Putting a price tag on Bebo is just about impossible. Rupert Murdoch bought MySpace in July 2005 for $580m, since when traffic has increased 132 per cent. Birch called the purchase "the deal of the century", and estimates the site is now worth $6bn, though even this may be far too conservative for a site with more visitors than $115bn-valued Google.

Birch sold a tiny slice of Bebo to Benchmark Capital in May for $15m, prompting analysts to suggest a value of $100m. But Birch insists the deal was about bringing in expertise and easing cash flow rather than valuing the firm. Like MySpace, Bebo’s mind-boggling visitor numbers point to a price tag of hundreds of millions, probably billions.

How Bebo conquered the web
Incredibly, Bebo has only been around for a year. Birch, with his wife Xochi, launched it as a photo-sharing website in January 2005, reinventing it six months later by copying the pioneer of social networking, Friendster.com.

"We knew what we were doing," recalls Hertfordshireborn Birch, who’s now based in San Francisco. "In 2003 Xochi and I started and sold a social networking site called Ringo. A non-compete clause meant we had to wait to launch another. This meant we had a lot of time to think about Bebo, so it’s no accident we got things right the first time round."

Friendster and MySpace had shown Birch what the site should look like, but he took advantage of being late to market by learning from their mistakes. "To a newcomer, social networking sites probably all look the same, just as cars do when you see them for the first time. But there are important subtle differences."

Instead of allowing users to create snazzy backgrounds or "skins" using HTML like MySpace does, Beboers must use PhotoShop. "HTML comes with security risks, and because it is a complex coding program you can end up with a lot of broken pages," Birch says. "Photoshop is easier and anyway on Bebo the community designs skins and they get shared. We have skin charts. The creators get kudos when they see their skin being used by 20,000 Beboers."

Bebo lifted all restrictions on uploading photos. For teenagers with digital cameras this was a godsend. Such generosity brought a few challenges. "Our bandwidth is a few gigabits a second. This isn’t easy to manage. We have 120 servers and spend a few hundred thousand dollars a month on equipment."

Birch also targeted his market carefully, ensuring users from the UK, Ireland, Australia and New Zealand would feel at home. Schools and universities from those countries are listed, and new users are required to start their journey on Bebo by stating which college they attend. This approach has helped Bebo beat MySpace in the non-US anglosphere. It also explains why the age group is so young, though alumni are now as likely to register as current students.

Money has nothing to do with Bebo’s success. "We have 12 employees," says Birch. "For the first year we funded Bebo from the profits of my other dotcom, BirthdayAlarm." This site provides members with anniversary reminders. "BirthdayAlarm has 45m members, and since we added a premium e-card service, it generates a few millions dollars of profit a year."

To promote Bebo, Birch simply added "a few text links on BirthdayAlarm, saying ‘check out our new site’. We got a few thousand visitors, and word of mouth did the rest. I’ve never spent a penny on marketing in my life."

Where’s the revenue?
With 3.5bn page impressions a month, Bebo ought to be churning out cash for its founder. But the site is entirely free for users, and Birch says, "We’re not spending a lot of time thinking about revenue. On the internet revenue is proportional to traffic, so we’ll keep concentrating on traffic." Ad banners are restricted to a few discreet corners of the site, generating a few million dollars a year. "I have just one advertising guy," says Birch. "We outsource advertising to an agency called Etype in the UK, and we have an agency in the US. It is their job to oversee the outsourcing."

Product placement will be a crucial revenue stream. "We will have sponsored skins, such as an iPod skin sponsored by Apple." And the site’s newest feature, Bebo Bands, is sure to be a goldmine. "Right now bands can upload as much of their music as they want. Users vote for their favourite band by linking to it. Companies are going to want to promote their bands on the site, and we may copy Google in having organic, user-generated rankings, and a separate paid-for ranking. All sorts of business models are going to evolve, but we don’t want to compromise ourselves through short-term greed."

MySpace is less cautious, and is set to retail Fox TV episodes for $1.99. Tie-ups with Ebay and Google are also being negotiated.

A history of failure
Birch’s patience to commercialise Bebo is all the more admirable since he had a slow start to his entrepreneurial career. "I used to work as an IT guy at an insurance firm, but I was always looking for a way out. When the internet arrived I knew I’d been saved." His first forays were, as he puts them, "learning experiences".

"My first idea was creating tests for IT professionals at job interviews. It never launched. We did a self-updating address book, called Lemon Link, which had very few members. We did BabySittingCircle. co.uk, but children and the internet don’t mix too well. Then we did a will-writing site called FriendlyWills.co.uk. It was profitable, with very low overheads, but we needed to partner with financial institutions, which we didn’t want to do. Then we did BirthdayAlarm, which worked, then Ringo which worked, and then Bebo. Everything I did taught me something, which is why we’ve done so many things right at Bebo."

A typical maverick, Birch says he "detests corporatist business environments" and loathes "consultants who tell you how to run your firm". In 2002, he moved to California with Xochi, though he says his emigration had nothing to do with the lure of Silicon Valley. "I believe it is as easy to run a dotcom from London as it is from San Francisco. We moved here because my wife is American."

He believes anyone with the right attitude can found the next Bebo. "All you need is a computer and a broadband connnection. Resources and size mean nothing on the internet."

The trick, says Birch, is to understand the technical side of the business - even if you are the boss. "If you employ someone to make your vision a reality there will always be a communication problem. You’ll see one thing, they’ll see another. I make sure I spend half my time working on the technical side of the site. If I didn’t keep getting my hands dirty then I’d start to lose touch with the product."

But Birch’s enthusiasm for minutiae only runs so deep. His skills gap? "I find finance boring, so I needed to hire someone who finds it really exciting. The only financial thing I care about is if we are making money."

Resilience, he says, is key to making it in this business. And so is optimism. "It helps if you have the technical know-how, and having a few failures under your belt is no bad thing. Each start-up Xochi and I did taught me something I can use at Bebo.

"But the great thing about the internet is knowing you could start up something massive from your living room. There’s nothing to stop you." Charles Orton-Jones is the PPA Business Writer of the Year.

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