Updated 1:15 p.m., with comments from Powerset co-founder and Microsoft executive.
Microsoft confirmed the acquisition Tuesday on its Live Search blog.
"We're excited to announce that we've reached an agreement to acquire Powerset, a San Francisco-based search and natural language company," the company said in the blog posting. Powerset workers will join Microsoft's core search relevance team and remain based in San Francisco. The company said that Powerset's technology will complement existing natural language processing work being done inside Microsoft's research unit.
Terms of the deal were not disclosed, although VentureBeat, which reported last week that the deal was in the works, said Microsoft was paying $100 million or more.
Powerset, which has licensed technology from Xerox's PARC unit, recently made public a tool for searching Wikipedia. The company has 63 employees, all based in San Francisco's South of Market district.
Powerset's Mark Johnson said in a blog post that the company needed deeper pockets to reach its goal.
"With any start-up, the challenge is to take the seeds of an idea and grow it into a viable company," he wrote. "At Powerset, we transformed our idea into a world-class semantic search platform, demonstrating the future of search with our Wikipedia search experience. But building a large-scale semantic search engine is expensive, requiring an engineering effort and computing resources beyond what most start-ups could ever imagine...We believe that this is the fastest way to bring our technology to market at a large scale."
In November 2006, Powerset said it had landed $12.5 million in Series A funding from Foundation Capital, Founders Fund, and angel investors.
Update: In an interview, Microsoft's Ramez Namm said that Powerset's technology will help Microsoft in its long-term effort to create a more ideal type of search, but said there are also some things that could be applied to Live Search soon, although he wouldn't offer any specifics.
Namm declined to take a stab at how long or how much it would cost to take Powerset's approach and apply it to the web, but Powerset CTO Barney Pell did say that the two main hurdles to that--limited hardware resources and having its own core search product--were now removed. Pell added that search, and natural language search in particular, were likely to be at the center of innovation for the next 20 years.
As for the broad areas where natural language search would help, Namm pointed to the fact that search results today are heavily dependent on using the same wording as the page you want, rather than understanding the meaning of a query.
"Search engines force the user to figure out what words might be used on the right page," he said. "That makes it much harder than it has to be."
Pell declined to say whether Microsoft faced any other active bidders in trying to buy the company and both companies refused to talk about the deal's financial terms.
Also check out this post, for more analysis from News.com's Dan Farber.