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This morning Microsoft [NASDAQ:MSFT] confirmed rumors that it will be acquring Powerset, a Bay Area-based company specializing in natural language Web search. According to press materials, Redmond's strategy is to incorporate Powerset's proprietary technology into its Live Search page, which currently lags far behind search leaders Yahoo! and Google. Powerset will remain a separate company and retain its current headquarters, to smooth the transition.

Microsoft didn't reveal the price paid, but estimates have put the number in the neighborhood of $100 million. With over $250 billion in market capital, that's chump change for Microsoft. But if Powerset's technology, which aims to provide more relevant search results by "evaluating" search phrases for context, doesn't bolster Live Search's ranking, it could all be for naught. Google and Yahoo! use algorithms that rely on keywords for searching, not entire phrases.