Briton banks a fortune from his $850m Bebo sale

For one of the leading social networking entrepreneurs, Michael Birch's introduction to his future wife, Xochi, happened in an endearingly old-fashioned physical way, in the bar of Imperial College in London.

Today, the 37-year-old Briton, whose networking site Bebo is a digital hub for millions of young people around the world, is reflecting on another real world connection that will change his life: the acquisition of a fortune. He and Xochi have agreed to sell Bebo for $850m (£423m) to the internet pioneer AOL, part of the world's biggest entertainment company, Time Warner, owner of HBO and Warner Bros.

The Birches, who live in San Francisco and have a substantial undisclosed stake in the company, are reported to be "very happy" at their new-found but undisclosed wealth.

Why are they suddenly so rich? Bebo is one of the biggest players in the goldrush of social media websites, exerting a strong hold on the lives of 40 million people. These web-savvy young people are prized assets to companies eager to garner social network advertising, which is growing by 75 per cent annually.

One by one, media conglomerates have been buying part or all of virtual communities – Rupert Murdoch's News Corp bought MySpace for $580m and Microsoft paid $240m for a 1.6 per cent stake in Facebook.

Like those sites, Bebo allows users to email friends, store photos, draw pictures, watch videos and TV, and make free phone calls.

Only Bebo operates on a school or college basis, resembling a trendier Friends Reunited, and has successfully swept younger audiences into its orbit.

According to the internet traffic monitor Hitwise, Bebo – which stands for "Blog early, blog often" – is the second most popular social networking site in the UK.

Two million members log on for half an hour a day, watching the online drama Kate Modern among other dedicated videos from bands and TV companies. In the US, Bebo boasts a far smaller market share but even more members, 4.4 million.

Bebo was the website linked to the recent spate of suicides in Bridgend, south Wales, which were rumoured to have been prompted by a desire to be remembered on its memorial pages.

Under the management of Joanna Shields, who will remain while Mr Birch and his wife depart, the company is about to expand into France, Germany, Italy, Spain and the Netherlands. In an email to staff, AOL's chief executive, Randy Falco, described its acquisition as "game changing" for the one-time dial-up internet pioneer, which has been transforming itself into an online advertising powerhouse. He said social networking sites were "growing at a fantastic rate".

Analysts had expected the sale, which has been rumoured for several weeks and been negotiated for months. "It comes as no great surprise to see another traditional publisher buying in to the power of the social networking phenomenon," remarked Alex Burmaster, of Nielsen Online.

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

Mike Butcher, editor of TechCrunch UK, said: "For $850m to be dangled in front of the founders, who started it only three years ago, it must have seemed a good deal."

Mr Birch, a computer programmer who founded two companies, BirthdayAlarm.com and Ringo.com before Bebo, kept a low profile yesterday, though he may wish to indulge his entrepreneurial streak again. According to the Bebo's corporate website, Mr Birch admires the Channel Tunnel and his "biggest dream is to raise enough money to build an Atlantic tunnel".

The profile on the website then jokes: "Donations gratefully accepted."