Making its first major acquisition in years, Time Warner's (TWX) 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)

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.

In the wake of the dot-com bubble -- and amid allegations of past revenue-recognition policies that were overagressive -- AOL's ad revenue had been steadily declining, as long-term contracts signed around or before the turn-of-the-century online advertising peak petered out.

AOL's ad revenue grew from $204 million in the fourth quarter of 2003 to $214 million in the first quarter of 2004, says AOL, giving the company two consecutive quarters of sequential revenue growth.

But the first quarter's figures were down from $226 million one year earlier, while AOL rival Yahoo! said its marketing services business, excluding acquisitions,

grew 48% year over year in the first quarter.

Analysts seemed somewhat positive about the pact Thursday.

The deal should help AOL manage its brand advertising inventory, "an area where AOL has struggled mightily in recent years," wrote CIBC World Markets analyst Michael Gallant. Any impact on Time Warner's financials will be in the range of a rounding error initially, Gallant said, but likely will be accretive in 2005. Gallant has a sector outperformer rating on Time Warner; his firm has performed noninvestment banking, nonsecurities-related services for Time Warner within the past year.

Merrill Lynch analyst Jessica Reif Cohen wrote that the deal "sends a very important signal regarding management's willingness to invest in the AOL business." Although Cohen said she questioned the longer-term need for intermediaries such as Advertising.com, she wrote that the deal would benefit AOL in several ways, such as by helping the company use Advertising.com's network of sites to better-serve clients already advertising on AOL.

Time Warner's shares gained 4 cents Thursday to trade at $17.39.