Time Warner's AOL internet division is buying the social networking site Bebo for $850m (£417m) in cash.

Bebo is the third-biggest social networking site in the US, behind MySpace and Facebook.

AOL says that Bebo has more than 40 million members worldwide who view an average of 78 pages per day each.

The price-tag is tiny when compared with the valuations of similar websites. Microsoft bought 1.6% of Facebook last year for $240m.

Online advertising

News Corp bought MySpace for $580m in 2005 but now estimates that it is worth more than $15bn.

Social networking sites are seen as a valuable location for online advertising, because members post information about themselves and can then be targeted with products and services likely to appeal to them.

The transaction comes at a time when Time Warner is considering splitting its business to part company with its AOL unit.

Bebo was the world's ninth most popular social networking site in January, according to the internet statistics provider ComScore, which also ranked it as the second most visited in the UK.

It was founded in California by Michael Birch, a British entrepreneur, who still owns a big stake in the business and so will make a great deal from the sale.

Alex Burmaster, European Internet Analyst for Nielsen Online, said: "It comes as no great surprise to see another traditional publisher buying in to the power of the social networking phenomenon.

"Microsoft did it with Facebook, News Corp did it with MySpace so Bebo was the next logical target."

He added: "Bebo has an incredibly strong brand identity, particularly with the teenage and young adult market, so it will be very interesting to see how AOL makes best use of their new youthful Trojan horse."

BBC NEWS | Business | AOL acquires Bebo social network

AOL and time Warner are not exactly on point in doing business deals online... I cannot see how they could profit from this purchase apart from brand awareness.

However Online purchase of websites is like real estate..... you work that out