Microsoft spends $1.2 billion to acquire search engine maker

Microsoft will once again shell out over a billion dollars to acquire technology that will help it compete against arch nemesis Google. On Tuesday, Microsoft bought one of the world's best-known makers of business intelligence software, Fast Search & Transfer of Oslo for 6.6 billion Norwegian kroner or about $1.2 billion. Fast's technology mines unstructured data (such as e-mail and instant messaging archives) and multimedia sources (such as voicemails and video archives) to find business trends, sales leads and other associations.

The Microsoft/Fast deal is expected to be complete in the second quarter of 2008, pending shareholder approval. When that happens Fast's technology will give Microsoft an enterprise-grade, business intelligence search engine that will allow it to better compete with Google Search Appliance, among other contenders. This will complement Microsoft's existing search engine technologies including MSN Live Search, Microsoft Search Server and SharePoint Server. SharePoint has been popular. Bloomberg.com reports that it raked in more than $800 million in sales over the year that ended June 30 and dubs it the fastest-growing software by sales in Microsoft's history. But its appeal is largely with small to mid-sized customers.

The Fast technology is intended to make Microsoft search more attractive to enterprise customers - but could trickle into consumer search as well, according to an article in the International Herald Tribune .

"What this purchase will do is allow Microsoft to go to the largest companies in the world and say, 'We can handle every search need you ever dreamed of,' " said Whit Andrews, an analyst at the research firm Gartner in Shrewsbury, Massachusetts. "I would not be surprised also if Microsoft did not incorporate Fast's search technology into some of its broader consumer search programs."

Fast, which competes with British firm Autonomy and with Endeca, of Cambridge, Mass., has been struggling financially in 2007 - it reported a third-quarter loss of $100 million, and $26 million loss in the second quarter.

But the move is a shocker for a couple of reasons. Microsoft has been successful with SharePoint, so it's a bit of a surprise that it would throw $1.1 billion to grab search technology. Plus, after the whopping $6 billion purchase of aQuantive last summer, Microsoft CEO Steve Ballmer told the world in October that Microsoft would be buying 20 or so companies a year over the next five years but that these would be mostly small fry acquisitions in the $50 to $200 million range. That's par for the Microsoft course. In fiscal 2007, Microsoft reported 13 acquisitions with a combined cost of $1.34 billion. So while these kinds of large acquisitions are outside the typical Microsoft profile, perhaps they are an indication of the kind of Microsoft we can expect in the Post-Bill-Gates era. Microsoft has been stockpiling cash for years - and as of October it had $23 billion available. Ballmer is obviously willing to spend it.

This purchase should also squash whatever might remain of the Yahoo acquisition rumors. Yahoo looks as if it were merely a diversion tactic to keep its competitors from guessing which search engine technology it was courting next. Why be another Oracle, entering into bidding war after bidding war for desired acquisition targets? Let the media and blogosphere follow the wrong scent leaving Microsoft free to quietly negotiate with a company that has slipped into the red.

What are your thoughts on the new "buy-what-you-need" Microsoft? Does the company have the skills to do the hard part -- integrate the technology it purchases with existing product lines? And will large customers want Microsoft to be its go-to vendor for enterprise search?

Go to Microsoft Subnet for more news, blogs, opinion.

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