Bebo: Michael Birch

The Bebo founder explains how he built an $850m site in just over three years

How does $850m for three years’ work sound? The Birches, who recently sold social networking site Bebo for that tidy sum, would probably suggest it’s worth a few late nights in the office.

Like so many internet success stories, that of husband and wife Michael and Xochi Birch, initially appears to be an overnight sensation. The real story includes five preceding internet start-ups, and learning the valuable lesson of knowing when to let go.

Michael’s love affair with online ventures began shortly after he quit his position at an insurance firm. “I was always entrepreneurial,” he says. “But I was trying to be entrepreneurial within a very boring insurance company and it was probably the most frustrating thing in the world. Then the internet happened and I quickly realised this was the perfect medium.”

Relocating to San Francisco

When Michael married Xochi, a Californian, he promised they’d spend five years in England, five in the States, then decide where they wanted to settle. Having spent eight years in the UK, it was time for Michael to live up to his end of the bargain and the couple relocated to San Francisco.

Michael insists his penchant for online start-ups would have developed even he hadn’t moved to the state that brought us Google, but admits it’s ‘not a bad place to be running an internet business’. “I’m just lucky Xochi isn’t from Utah.”

Settled amid a strong community of online developers, the Birches set to work on their own ventures. However, online success was not instant and a few years of trial and error ensued.

The first two projects, a self-updating address book and a programmers’ tool, fell by the wayside. Then came, an e-card and diary alert tool that sends out reminders so you never miss a friend’s birthday. The site was a major hit and is still going strong to this day, albeit without the Birches’ direct involvement.

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Having acquired a taste for dot com success, Michael and Xochi turned their attention to social networking and developed which they sold a few months later. “We just didn’t have the resources to throw at it. We’d had three offers in a week and it was hot property at the time.”

In early 2005, armed with the cash from the Ringo sale, and confident they had the skills to set up an even better social network, the Birches delivered Bebo to the online community.

“Ultimately, we built something we thought we’d find useful and wanted to use, and hoped enough people shared the same opinion,” Birch insists.

Enough people did. Successfully tapping into the youth demographic, Bebo enjoyed phenomenal growth during the three years Michael and Xochi were at the helm. Topping 40 million users, the site dominated the ‘tween’ market and ranked number one for social networks in several countries including, at one stage, the UK.

“Starting Bebo was a similar process to starting the other ventures,” Michael says. “The difference was this took off from a very early stage. I think that was because we’d got a lot better at learning how to do things. There wasn’t so much trial and error. After a while you start to get an instinct for what works and what doesn’t.”

The site’s sole revenue model was advertising. However, Michael soon recognised the potential ads have for frustrating users. He refused to allow pop-ups or pop-unders and restricted ads to one unit per page.

“It’s important to provide a service that works for the advertiser but equally, it’s in the advertiser’s interest for users to embrace ads, not be frustrated by them.” Time will tell if Bebo’s new owners maintain this stance.

Bebo’s year

A couple of months before Michael and Xochi signed the multi-million dollar deal with Time Warner’s AOL, we asked him if he thought 2008 would be Bebo’s year. Facebook was riding a wave of unprecedented user growth, MySpace was ticking along nicely following Murdoch’s acquisition of it, and there was nobody biting at Michael’s heels for shot at third place in the market.

“We’ve been laying the ground work for this year and if you look at the marketplace as a whole there’s not really anyone else in the English language market positioned as far down the road as Bebo. A year is a long time, and by the end of this one the landscape may have changed.”

A mere three months after Birch expressed that opinion, the cyber cynics were queuing up to make their inevitable objections to the Bebo price tag. Even Time Warner’s chief exec, Jeff Bewkes, recently acknowledged his company may have ‘overpaid’ the Birches.

But while the critics and online executives dissect the numbers, the Birches have returned to the drawing board with food for thought, and a tidy sum in the bank.

“In a couple of years I’ll be back with another start-up,” promises Michael. Watch this space…


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