AOL Puts Transformation Into 'Context'

The deal furthers efforts at the Internet giant to transition into a fully ad-driven, online content heavyweight. Acquiring Sphere gives it control of the three-year-old firm's contextual search technology and monetization platform, which AOL spokespeople said would extend its own content network and ad technology.

Sphere licenses its platform to Web publishers seeking to enhance their sites with auto-generated content: links, ads and embedded text and video. The content delivered through Sphere -- which can come from publishers' own sites or those of Sphere's other partners -- is gathered and targeted using the company's search and contextual technology.

Sphere also counts numerous large media organizations as clients, such as Newsweek, Reuters and MLB.com. AOL also has been using Sphere to place contextual links on some of its own verticals, such as AOL News and TMZ.

As a result, the purchase gives AOL the added exposure of the firm's large network of third-party publishers. It also frees AOL from having to license Sphere's contextual content search and embedding technology for use on its sites.

The purchase also builds on the company's recent acquisition of Bebo, the No. 3 social network.

Adding Sphere could help AOL deliver on the promise it made when it snapped up Bebo -- that is aims to supercharge the monetization of the social networking space through user engagement and highly targeted placements.

Terms of the acquisition were not disclosed, but a source familiar with the deal indicated that AOL paid about $25 million for the company.

The move also comes at a time of maneuvering and dealmaking among the major players in Web media -- many of whom are angling for leverage in response to Microsoft's proposed acquisition of Yahoo, which also comes against the backdrop of an expected surge in Internet ad revenues.

AOL, which is preparing to jettison its sagging dial-up business, is believed to be in late-stage negotiations with Yahoo (NASDAQ: YHOO) about a possible combination to stave off Microsoft's (NASDAQ: MSFT) bid for the Sunnyvale, Calif., portal giant.

"We are joining AOL at an opportune time," Tony Conrad, Sphere's CEO and co-founder, said in a company blog post. "AOL is doing what great, sustainable business do every so often -- they're reinventing themselves."

"As the business model of the oldest and one of the biggest Internet businesses evolves, Sphere becomes an important piece of their strategy to reach across and engage the Web," Conrad said.

AOL said it plans to fold Sphere into its programming division, headed by executive vice president Bill Wilson.

While an AOL spokeswoman told InternetNews.com that the acquisition would improve the company's content network, the deal also has clear benefits for Platform A, AOL's consolidated advertising division.

Platform A already enjoys the largest reach of any online advertising network, according to comScore. While Sphere's technology -- and the relationships with its partner publishers -- will live officially in the company's programming division, integration with Platform A is only a matter of time, the spokeswoman said.

The company's technology works in two ways. Publishers can embed a widget containing ads and related content onto their page. They also can use it to highlight text keywords on their pages -- adding links that expand into pop-up ads or related content links when a user mouses over them.

That related content can come from either the publisher's own site, or those of other Sphere partners.

Sphere claims that its underlying technology, called Content Genome, can search and index text -- or visual content with text tags -- without relying on additional metadata, simplifying implementation for publishers.

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