AOL to buy online ad firm

America Online Inc. yesterday announced plans to buy Advertising.com Inc. for $435 million, the Internet giant's first acquisition in four years. The plan is a sign that AOL hopes to strengthen its control over the online advertising field.

"Online advertising is back," said Jonathan Miller, chairman and chief executive officer of AOL in Sterling, Va. "AOL's acquisition of an already profitable business ... will provide us with additional reach and tools to strengthen our competitive position in this business."

Baltimore-based Advertising.com takes ads from Web sites, search engines and legitimate e-mail publishers and redelivers them to customers, Mr. Miller said. Its "pay-for-performance" quality means the company is paid for each customer it delivers to a client.

Advertising.com is the largest third-party advertising network in the United States with 2003 revenue at $132 million. In purchasing Advertising.com, AOL would create the largest online advertising network on the Internet, one capable of reaching 140 million users each month, Mr. Miller said.

Advertising.com was pursuing an initial public offering when America Online first approached the company for talks about an acquisition.

AOL's timing was strategic, said cable and media analyst David Mantell of Loop Capital Markets in Chicago. If Advertising.com had gone through with its plans for an IPO, its price tag could have been a lot higher.

The online portion of the advertising industry has been quickly growing, making the purchase even more valuable.

"More and more advertisers are seeing the value of online advertising," Mr. Mantell said.

Advertising.com's broad Internet reach would strengthen AOL's force in online advertising because it would reach all Internet users, not just AOL members, Mr. Miller said.

"In a growing market, you want diversity. It's true for AOL and Advertising.com," said Mike Kelly, president of AOL Media Network, the branch of AOL that Advertising.com would fall under.

"It's a significant statement from America Online about its intent to continue growing its advertising business," Mr. Mantell said. "You just don't spend $400 million in cash just casually. There has to be a good reason to do it."

Both sides of the acquisition could benefit from the transaction, Mr. Mantell said.

Scott Ferber, chief executive officer of Advertising.com, said the acquisition offers the advertising company more room to grow.