Neither company mentioned the price of the transaction on separate blog entries, where they made the announcement.
Microsoft said through its public relations firm that the companies are not disclosing the terms of the deal. Last week's rumor set the price at about US$100 million.
In a blog entry attributed to Microsoft Senior Vice President Satya Nadella, the company said the Powerset team will join Microsoft's Search Relevance team and stay in San Francisco, where the startup is headquartered. Powerset has 63 employees that will remain in their current office, Microsoft said.
Powerset is pioneering semantic search, technology that Nadella said is valuable to Microsoft's direction for its search engine.
Semantic search attempts to extract meaning from search queries and Web pages rather than simply matching them up with relevant links based on keywords or previous or related searches. Search-engine leader Google still primarily uses keywords to deliver search results.
"We know today that roughly a third of searches don't get answered on the first search and first click," Nadella wrote. "Usually searchers find the information they want eventually, but that often requires multiple searches or clicks on multiple search results."
He cited two specific problems for the delay in finding information with traditional search methods -- differences in phrasing or context between a user's search and the way information is expressed on Web pages, and lack of clarity in the descriptions for each Web page in the search result.
Powerset is currently testing a search engine that attempts to understand the meaning of Web pages, in part using technology licensed from Xerox's PARC subsidiary. That technology creates a semantic representation of Web pages by parsing each sentence and extracting its meaning.
In a blog entry attributed to Powerset's Mark Johnson, the company believes that Microsoft will help it deliver its technology to a wider audience much more quickly than the startup could do itself.
"Microsoft shares our goal to improve search through deeper analysis of queries and documents, and understands that our technology and expertise will play a key role in the evolution of search," he wrote. "With an existing search infrastructure, incredible capital resources, unlimited data, a leading search team, and clear mission to revolutionize the search landscape, Microsoft can rapidly accelerate our progress in building semantic search technology and bringing it to full Web scale."
Microsoft plans to integrate Powerset's technology with some of its own natural-language technology that has been in development in Microsoft Research, Nadella wrote.
The company will disclose more details on how it will use Powerset's technology in its Live Search engine at a later date, he added.
For years Microsoft has been looking for ways to bolster its search strategy, and it needed an alternative to purchasing Yahoo when that deal fell through.
Since search-based advertising is the largest slice in the online advertising pie, Microsoft must increase the profile of its Live Search engine in order to build this part of its business.
Live Search is seen as far inferior to Google's search engine, and also ranks behind Yahoo in terms of how often it's used.