Microsoft on Tuesday confirmed it has reached an agreement to buy Powerset, a natural-language search firm in San Francisco. Terms of the deal were not disclosed, but some industry watchers estimate the transaction at $100 million.

Powerset will join Microsoft's core search-relevance team. Microsoft said the company's technology complements other natural-language technologies Microsoft research has developed.

Powerset also brings talented engineers and computer linguists to Microsoft's Live Search. The Powerset team boasts a wide range of experience from other search engines and research organizations like PARC (formerly Xerox PARC).

"We're buying Powerset first and foremost because we're impressed with the people there," wrote Satya Nadella, senior vice president of search, portal and advertising at Microsoft, in the Live Search blog. "Powerset CTO and cofounder Barney Pell is a visionary and incredible evangelist."

A Semantic-Search Quest

Nadella cited a shared vision to take search to the next level by adding understanding of the intent and meaning behind the words in searches and Web pages. Roughly a third of searches don't get answered on the first search and first click, according to Microsoft.

"Usually searchers find the information they want eventually, but that often requires multiple searches or clicks on multiple search results," Nadella said, citing two specific problems.

The first is differences in phrasing or context between a user's search and the way the same information is expressed on Web pages. Today's search engines don't understand that "shrub" and "tree" are similar concepts. They also don't understand that "cancer" sometimes refers to a disease and sometimes to a horoscope and when a query or a Web page refers to which.

The second reason is a lack of clarity in the descriptions for each Web page in the search results. Sometimes a result looks relevant from its short description on the results page but turns out to be not so relevant when you visit the page. As a result, Nadella said, searchers frequently click results and then rapidly click back.

"These problems exist because search engines today primarily match words in a search to words on a Web page," he said. "We can solve these problems by working to understand the intent behind each search and the concepts and meaning embedded in a Web page."

Will Powerset Kill the Deal?

Some may believe this is Microsoft's second-best choice vs a Yahoo acquisition, but reports in suggest Redmond is preparing another run at Yahoo.

Microsoft may be looking at how partners like AOL and News Corp. could help it acquire Yahoo, carve up the business, and leave it with the search division, according to Greg Sterling, principal analyst at Sterling Market Intelligence.

"If the Yahoo deal had gone forward originally, Microsoft may have been busy integrating the various properties and might not have done the Powerset deal," he said. "But I don't think the Powerset deal was a reaction to the initial collapse of the Yahoo acquisition."

Microsoft's Powerset acquisition may be more about competing with , one of the only other likely candidates to want the natural-language technology firm. Powerset has so far only extended its technology through the sites. Microsoft, Sterling said, sees an opportunity to make the technology a core part of its research and expand that capability to the entire Internet.

"Powerset obviously needs the resources of a company like Microsoft to scale up," Sterling said. "Often a powerful motivation to buy a startup is to get the talent as much as whatever technology or capabilities they've developed. Microsoft needed the talent in its search."