The purchase is part of AOL's move to expand its internet and advertising portfolio and follows its acquisition of social networking site Bebo last month for $850m (£417m).
Sphere will become part of AOL's programming division, which is led by executive vice-president Bill Wilson.
Founded in 2005, Sphere uses its contextual search platform technology to make connections between content from blogs, video, media, photos and ads. These connections are then displayed in a pop-over window or an integrated widget.
AOL plans to use Sphere to improve the content on its own sites and to distribute content across Sphere's third-party publisher network.
Prior to the acquisition AOL partnered with Sphere to offer its widget technology on AOL news and the myAOL service, Mgnet.
Ron Grant, president and COO of AOL, said: "Our focus at AOL is providing consumers relevant content wherever they are on the web, and Sphere's capabilities fit in perfectly with this effort."
Tony Conrad, CEO of Sphere, said: "AOL's vast properties and platforms offer us the opportunity to reach publishing and news environments across the web."
Earlier this week Verizon selected Platform-A, AOL's ad division, as the main advertising provider of its online and mobile web properties.
As part of the deal AOL will be the only ad sales group that can guarantee ad placement on Verizon's online and mobile networks.