Microsoft, Powerset confirm deal

a substitute for what they were going for with Yahoo," he said. "This isn't the answer to Microsoft's prayers."

While Yahoo researchers are also doing work on semantic search, Microsoft might have better luck developing and commercializing Powerset's technology than if it had made the Yahoo acquisition, Patience said. "The question is, would the Yahoo people have already left or gotten lost inside the greater Microsoft?" he said. "These [Powerset] guys have a better chance of influencing Microsoft search direction than the semantic engineers at Yahoo would have done."

Microsoft plans to integrate Powerset's technology with some of its own natural-language technology that has been in development in Microsoft Research, Nadella wrote.

The company will disclose more details on how it will use Powerset's technology in its Live Search engine at a later date, he added. Microsoft said it expects the deal to close in a few weeks.

For years Microsoft has been looking for ways to bolster its search strategy, and since the Yahoo deal fell through it is under even more pressure to boost its search market share.

Since search-based advertising is the largest slice in the online advertising pie, Microsoft must increase the profile of its Live Search engine in order to build this part of its business.

Live Search is seen as far inferior to Google's search engine, and also ranks behind Yahoo in terms of how often it's used.