In a Tuesday memorandum to the employees, AOL has said that Bebo – the social networking site that AOL acquired for $850 million, in March 2008 – is “not worth additional investment;” and, as such, a “sale or closure” of the site was on the cards.

Noting that Bebo had fallen way behind in the aggressively-competent social networking arena, largely dominated by Facebook, AOL said that it would no longer be able to make a “significant investment” in the struggling site, for which it is now seeking a buyer. The company will likely reach a decision about Bebo by May 31.

The AOL memorandum to the employees stated: “It is clear that social networking is a space with heavy competition, and where scale defines success. Bebo, unfortunately, is a business that has been declining and, as a result, would require significant investment in order to compete in the competitive social networking space.”

Bebo, which AOL acquired from its British co-founders, Michael and Xochi Birch, was one of the most popular social networking sites in the UK and Australia at one time. However, it failed to carve a niche for itself in the US, where it never actually gained any foothold.

Commenting on the AOL’s decision to sell Bebo, Forrester Research’s senior analyst Augie Ray said that since AOL is revamping its business strategy to focus essentially on advertising revenue, it has to evaluate its choices accordingly.