AOL is increasing its advertising capabilities

America Online said it had made the purchase to better capitalise on the expected upturn in website advertising.

According to industry figures this will rise 20% to $6.78bn (�3.7bn) in 2004.

AOL's move marks a change of direction, as Advertising.com runs ads across the internet, whereas AOL has previously focused mainly on its own websites.

"We will benefit from the incremental revenue from Advertising.com, as well as maximising our own advertising inventory using their technology," said AOL chief executive Jonathan Miller.

Mark May, an internet analyst at Kaufman Bros, said the deal shows that AOL, part of media giant Time Warner, "needs to spend considerable amounts of cash to position the company for future growth opportunities, and that Time Warner management is willing to let them do that."

The acquisition comes a month after Time Warner chief executive Richard Parsons said AOL had been "stabilised" after years of subscriber losses and cost-cutting - in 2003 it lost 2.2 million internet members.