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Powerset Purchase to Boost Microsoft Search?

Microsoft CEO Steve Ballmer appears to be following through with his plans to move forward on the search engine front after the company's ill-fated bid for Yahoo failed.

That is – if Yahoo (NASDAQ: YHOO) with a side of advertising is no longer on the menu, there are other fish to fry when it comes to search companies.

Microsoft quietly announced on Tuesday that it is buying San Francisco-based Powerset, a leader in the area of what is often called "semantic search." To date, the company has used its search technology and natural language recognition to scan Wikipedia articles and provides context sensitive searches based on the user's behavior.

"Powerset is first applying its natural language processing to search, aiming to improve the way we find information by unlocking the meaning encoded in ordinary human language," read a statement on Powerset's Web site.

Microsoft's (NASDAQ: MSFT) buyout move had been rumored since late last week, primarily on the online venture capital news site, VentureBeat.com.

Ballmer has been driven to improve Microsoft's far third-place position in search – behind both Google and Yahoo -- for several years now without much progress. Thus the software giant's abandoned bid for Yahoo in early May was considered a setback by many observers.

To be fair, however, Ballmer had said in February that the company would continue to aggressively pursue its search and advertising agendas, whether Yahoo acquiesced or not.

"[Before the offer to buy Yahoo] we were on a path and we will stay on that path regardless," Ballmer told a gathering of financial analysts at that time. In that regard, the company continues to acquire technologies that fit its plans.

For instance, just recently, Microsoft acquired Norwegian enterprise search engine firm Fast Search & Transfer for approximately $1.2 billion.

"Powerset will join our core Search Relevance team, remaining intact in San Francisco," stated a posting on Microsoft's Live Search Blog. "Powerset brings with it natural language technology that nicely complements other natural language processing technologies we have in Microsoft Research."

A technology buy

"Powerset is sort of the darling of semantic search," Charlene Li, vice president and principal analyst at Forrester Research, told InternetNews.com. However, Li doesn't see Ballmer as on a "buying spree," as some observers have suggested since the demise of the Yahoo deal. "This is a technology buy," she added.

Meanwhile, another long-time Microsoft observer wondered aloud about the need for a Powerset buyout.

"It's interesting that Microsoft hasn't been able to make more progress on its own in getting natural language into its products, given that it's got such a big natural language group already in Microsoft Research," Dwight Davis, vice president at researcher Ovum Summit, told InternetNews.com.

As a matter of fact, one of the assets that Microsoft gets in the Powerset deal, as it turns out, is a dedicated group of search engineers and computational linguists, according to Microsoft's blog post.

"We're buying Powerset first and foremost because we're impressed with the people there …. we came away impressed by their smarts, their experience, their passion for search, and a shared vision," the blog post said.

In what is generally a friendly takeover, instead of the hostile try for Yahoo, the personnel are mostly expected to stay onboard after the sale – not so with Yahoo, which has been bleeding from the executive ranks ever since the idea of a takeover was first floated in January.

"[The Powerset purchase] makes sense," said Li. "Microsoft is very interested in advanced search technologies that can give them an advantage," she added. The aim is to provide searchers with more depth and context than is currently available.

"I think personalized social search is an area that is heating up," Li said.

Still, it's mostly an uphill battle for Microsoft. The latest worldwide market share numbers from Web statistics firm Net Applications have Google with 78.35 percent of searchers in June, followed by Yahoo at 11.78 percent. In comparison, the combined share of Microsoft's MSN Search and Live Search in the same time period totaled a mere 5.22 percent.

Terms of the deal were not announced, although VentureBeat.com reported the price was rumored to be in the neighborhood of $100 million. Microsoft officials did not respond immediately to a request for comment.

Update adds analyst comments