AOL (NYSE: TWX) has bought out Sphere, a blog and news contextual display service, for an undisclosed amount. The startup operates in a crowded contextual content display space with competition from the likes of Inform, AggregateKnowledge and many others. Sphere will be part of the company’s programming division, under Bill Wilson.

The company, co-founded in 2005 by Tony Conrad, raised about $4 million in venture funding from the likes of Hearst Publishing, Trident Capital, True Ventures (where Conrad remains a partner) and About.com founder Scott Kurnit. Since its start, it has refreshed its business model a few times, from being a blog search engine (a business black hole till now) to a contextual content service provider for bigger sites such as WSJ.com, Time.com and others.

AOL had previously been working with Sphere to offer its widget technology on AOL News. The rationale from AOL’s side: From Ron Grant, AOL COO: “Not only will it let us enhance content on our own sites, it will let us distribute our content across Sphere’s growing third-party publisher network...In addition, this acquisition provides AOL with access to advertising inventory across Sphere’s network, while growing its reach to content publishers via the widget.” The ad inventory part is key as AOL morphs itself as a primary ad network service provider.

Conrad explains the sale here on his blog.

Updated: On the sale price, Kara reports that while one source said the price was upwards of $25 million, sources at other companies to whom the San Francisco-based startup also talked to, including Google (NSDQ: GOOG), said Sphere was looking for more than that.