AOL is acquiring social networking site Bebo for about £425m to build an online community of 80 million users.
Bebo's 40 million users will be combined with AOL's AIM instant messaging and ICQ personal communications network, said AOL.
Randy Falco, AOL chief executive, said, "Bebo is the perfect complement to our personal communications network and puts us in a leading position in social media."
Falco said the deal would make AOL more attractive to online advertisers.
Analyst eMarketer predicts that by 2011, more than £2bn will be spent worldwide on social network advertising - a big increase from the £240m spent in 2006.
Bebo has about 100 employees in the UK, San Francisco and Austin, Texas.