AOL Inc plans to find a buyer for its social networking site Bebo, for which it paid $850 million in 2008, or shut it down.

The level of competition in social networking makes it difficult for the company to fight larger players such as Facebook and News Corp's MySpace, AOL said.

The company plans to decide whether to close Bebo or sell it by the end of May, it told staff on Tuesday.

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, the company said in a memo sent to staff.

AOL, which was spun off from Time Warner Inc in December, said it is not in a position to further fund and support Bebo in pursuing a turnaround in social networking.

The company said it is committed to finding interested potential buyers for Bebo. Bebo has about 40 employees, mostly in the United States.

Bebo, founded in San Francisco, is one of the most popular social networking sites in the UK, but never gained traction in the United States.

AOL paid $850 million for the company in March 2008 as the Internet company, then part of Time Warner, tried to latch on to the coattails of the social networking craze.

(Reporting by Yinka Adegoke. Editing by Robert MacMillan)