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.

In case you have been under a rock for the past year and missed the new ‘hot topic’ in search, let’s get a quick overview and then talk about the new developments.  “Semantic Search” is explained by Wikipedia as the ability to:

“Understand what a user is searching for, word sense disambiguation must occur. When a term is ambiguous, meaning it can have several meanings (for example, if one considers the lemma “bark”, which can be understood as “the sound of a dog” or as “the skin of a tree”), the disambiguation process is started, thanks to which the most probable meaning is chosen from all those possible.  Such processes make use of other information present in a semantic analysis system and takes into account the meanings of other words present in the sentence and in the rest of the text. The determination of every meaning, in substance, influences the disambiguation of the others, until a situation of maximum plausibility and coherence is reached for the sentence. All the fundamental information for the disambiguation process, that is all the knowledge used by the system, is represented in the form of a semantic network, organized on a conceptual basis.”

Google has created seeming ubiquity in the online search industry it seems impossible that someone would be able to offer a TRUE alternative.  And no, please don’t count Microsoft’s Live Search as an alternative to Google, Live Cash is an alternative to Ebates.com.  However there are a few start ups that are gaining traction in the Semantic search market.

Fortune Small Business Magazine (yes, I know it’s a dying medium, but my wife won’t let me take the laptop into the bathroom) did a feature article on Powerset, who has positioned themselves as the leader in Semantic search.  Having 25 Ph.D.’s in the office working to help users find ‘exactly’ what they’re looking for doesn’t suck at all.  This three year old company has created the most buzz in this niche of the industry, however at this stage the service has received mixed reviews from users.  One of the main reasons is because the service currently only searches through Wikipedia.  However I did like the perspective from Powerset’s CEO, Barney Pell, he said that they are training the software to think like a human, and this “human” that they’ve been creating is currently a 2 year old, and it has to be given time to grow up.

Another company that received some recent coverage today from VentureBeat is TextDigger.  Raising an additional $3.5 million in funding in the past year, TextDigger claims to not only have working software, but an ability to monetize it.  They are not looking to attack Google though, instead they are focused on the media services division of the industry and actually providing their software for a fee to publishers.

As exciting as this industry is, it is still a baby in a land of giants, or I should say, one giant.