What AOL Sees Looking Into Sphere

By Saul Hansell

I’m starting to wonder if AOL is getting a little giddy about acquisitions. Today the company announced it is buying Sphere, a little startup that helps blogs and other publishers provide links to Web content that relates to whatever they are writing about.

AOL has been buying up a lot of advertising companies trying to build on its successful advertising.com business. It also agreed to buy Bebo, an expensive bet on a second-tier social network. But at least there was logic in the link between Bebo and AOL’s instant messaging and video properties.

But Sphere? At best it is a service that is usually provided to publishers for free. And does AOL really want to be in the business of providing widgets and such to thousands of bloggers, not to mention cutting deals with ornery newspaper companies and the like?

It does, said Bill Wilson, AOL’s executive vice president for programming. Mr. Wilson described the Sphere as a media property suited to this age when audiences are fragmented and spread across the Web.
“Sphere has great distribution and syndication all over the Web,” he said.

Sphere’s business model is that it gives sites the ability to have related content displayed in a pop up window. And Sphere sells an ad that appears in that windows. The problem was that it wasn’t selling that many ads.

AOL’s idea then is to keep the small group at Sphere doing what it has done, but to help monetize the company’s product by selling ads better. There is also an opportunity, Mr. Wilson said, in using the service to drive more Internet users to AOL content. This is tricky because Sphere is meant to have an objective search engine that finds content anywhere on the Web that relates to a given topic. If site owners feel that AOL is biasing the links to its own properties, they may drop Sphere. Mr. Wilson said the company doesn’t need to do this as it is already well represented in Sphere’s results.

While most of the attention has been paid to Platform A, AOL’s advertising unit, Mr. Wilson has been busily revamping AOL’s content areas, reformatting all of them as blogs, largely modeled after the company’s successful TMZ.com gossip site. These include asylum.com, for men, and , for women. It is adding similar sites for parenting, home, kids and other topics.

This model, he says, has been profitable already, and has the potential to be more so once AOL digests its advertising acquisitions, merges its sales force, and can turn its attention back to actually selling ads.

Looking at all that activity, you wouldn’t say that what AOL is missing is a service like Sphere. Unlike Bebo, for which it agreed to pay $850 million, Sphere is cheap, limiting the risk of a mistake. The price was not disclosed, but it was probably about $25 million, according to an executive involved in the transaction. Still, if this deal is a sign that AOL has gotten a little trigger happy in the acquisition department, the long term cost to what is still a very fragile business could be very great.