The Deal
Monday, December 1, 
12:28 pm

[Posted on April 15, 2008 - 4:57 PM]

For many people, Google Inc. is the only thing they need and want to know about search (apologies to Yahoo! Inc.). But a number of other companies have been spawned that take search in different directions. One of those, Sphere, which provides contextual content searches for Web publishers, was acquired by AOL LLC on Tuesday.

San Francisco-based Sphere makes a widget used by publishers such as The Wall Street Journal, Time, Reuters and AOL to automatically link relevant blogs and other media content alongside online articles. Though terms of the deal were not disclosed, published reports indicate the purchase price was somewhere around $25 million.

Sphere raised more than $4 million in funding from Hearst Publishing, Trident Capital, True Ventures, Radar Partners and Blacksmith Capital. The company claims to be used by close to 70,000 media companies and Web sites.

Sphere CEO Tony Conrad said the company spoke with several "major players" in the Internet sector and received multiple offers, but the ability to tie into AOL's Platform-A advertising network was the determining factor.

"Sphere was just at the beginning stage of understanding how to marry ads to what we're doing, so joining AOL accelerates our ability to add that competency to our offering by leveraging AOL's expertise with advertising through Platform-A," he said.

Contextual search companies are drawing attention from investors and publishers because of their ability to post links to complementary content in real time, which helps keep visitors engaged on a Web site and makes it easier for advertisers to target their messages.

"Blogs and news feeds are the dynamic data of the Web," said Mark Cuban, owner of the National Basketball Association's Dallas Mavericks and an investor in Icerocket LLC, which searches everything from blogs to MySpace pages. "It takes sites like Icerocket.com, Technorati and Sphere to allow people to keep up with real-time changes."

In January, Inform Technologies received $15 million in funding from Spark Capital of Boston. The New York-based company provides linked content for more than 100 media companies such as The Washington Post, Newsweek Interactive, the New York Sun and Condé Nast. Unlike Sphere, which is used mostly for blog searches, Inform provides links for related articles, blogs, video and audio.

Inform CEO James Satloff said the acquisition of Sphere is "really great for the sector."

"It brings some attention to the space," he said.

Satloff said his company is approached "with regularity" about possible acquisitions, but remains committed to building out its operations. Its current funding will be enough to fuel the company to profitability, he added.

"This is the time to grow the business and to demonstrate that we can do what we say we're going to do," he said. "We're building a company that can be a long-term strategic partner with the world's authoritative publishers."

Though Technorati Inc. is one of the best known of the blog search firms, the company underwent a reorganization last year in which it laid off some employees and company founder and CEO David Sifry stepped down. In addition to pure-play blog-search sites, the San Francisco company faces competition from the likes of Mountain View, Calif.-based Google, which also offers blog searches.

The Sphere acquisition comes one month after New York-based AOL spent $850 million to acquire social networking site Bebo Inc.

More recently, the Internet unit of New York-based Time Warner Inc. has been in talks with Sunnyvale, Calif.-based Yahoo! regarding a possible merger as Yahoo! looks to thwart a takeover by Microsoft Corp. of Redmond, Wash.

Neither AOL nor Sphere used a financial adviser in connection with the deal. Simpson Thacher & Bartlett LLP served as outside legal counsel to AOL, while Sphere received advice from Perkins Coie LLP. -- David Shabelman


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