America Online Back in Takeover Game

Making its first major acquisition in years, Time Warner's (TWX Quote) America Online said Thursday it would spend $435 million in cash to buy the online marketing firm Advertising.com.

The deal for Advertising.com, which had filed in early April for a public stock offering, marks another step in AOL's effort to ride the recovery of the online advertising business.

AOL hopes Advertising.com will boost its online ad business in two ways -- by giving AOL a slice of the money that marketers spend on sites other than those owned by AOL, the nation's largest Internet access provider, and by helping AOL maximize the dollars it gets from advertising inventory on its own properties.

Advertising.com operates as an online advertising middleman, assembling a network of Web sites owned by more than 1,500 different publishers, and selling advertising that runs across that network. The company, which bills itself as the operator of the largest such third-party ad network, reported revenue of $132 million last year, up 80%, and operating income of $12 million.

The company specializes in a subset of advertising known as pay-for-performance, in which advertisers don't pay on the basis of how many people see its advertising, but how many respond to it, either by registering on an advertiser's site or by some other measure.

Pay-for-performance advertising is the fastest-growing part of the online advertising business, and includes both display advertising and the pay-per-click search-engine advertising that has fueled the growth of both Yahoo!'s (YHOO Quote) Overture Services and the soon-to-go-public Google.

Pay-for-performance advertising "really is the holy grail of what marketers are looking for," AOL vice chairman Ted Leonsis told reporters on a conference call Thursday.

AOL -- which invested $5 million in Advertising.com some years back, and which already does business with the company -- says that even without this acquisition, its advertising business is rebounding.