By Lex Davidson

I was in the middle of writing an editechial on the launch of Peer39, the first true semantic ad network, when a story came across my Google Reader page saying that Microsoft was purchasing Powerset for $100 million dollars.  We actually did a feature on the status of the Semantic search industry and discussed Powerset on June 19th (coverage).  So at least we know that we’re writing about the sweet spots in the industry.  This price point doesn’t come as too much of a surprise since Microsoft has proven that they not afraid for dramatically overpaying for technology if they feel that their investment will pay off 5-10 years down the line.  And I usually enjoy finding the negative spots of a deal, and you readers seem to like it, however I actually believe this to be an extremely intelligent move by the software giant.

One industry driving component is quantifiable differentiation.  And that is what Microsoft needs and it is what Powerset could deliver to them.  Semantic search is a hot topic in the industry for a reason and it has a very lucrative ad revenue potential.  Advertisers are looking to drive intent to engage, here is a quote from the CMO of VideoEgg, Troy Young, talking about this:

What the data shows is this: In creating value for brands, we need to look beyond “intent to buy” and towards “intent to engage” with a brand message.  In many cases, this has absolutely nothing to do with traditional models of targeting and everything to do with the “mode” a consumer is in when spending time on a Web page. We see as much as a 15x difference in our ability to get consumers to spend time with advertising across popular social media sites. We also see massive differences in time spent on ads when looking across various blogs and gaming environments.

Intent to engage is not an easy thing to accomplish through contextual or category driven targeting methods.  However, Semantic is looking to turn the industry on its head by examining what a site’s content is really about, and then placing a relevant advertisement alongside it.

So this could be the key to Microsoft gaining market share over Google since they would be bringing something different to the table.  And if they can make the user experience fast and easily navigated, they might have something disruptive to the current search industry.  And of course they would have to be able to take the Semantic algorithm past Wikipedia searches (currently the only site that Powerset searches through) to the rest of the web.

This news is not 100% confirmed, even though both VentureBeat and Silicon Alley Insider reported it as completed, Techcrunch’s Michael Arrington posted that he had inside tips that the deal was close to being completed but had not been officially signed.