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SAN JOSE, CALIFORNIA -- Yahoo hopes to leapfrog Microsoft by releasing a tool that allows users to quickly and easily search for information on their PCs as well as in their personal files stored at Yahoo's online services, a source familiar with the plan says.

Microsoft previewed an upcoming desktop search application last week at an event for financial analysts at its Redmond, Washington, headquarters. The tool builds an index of content on a user's computer and makes it searchable. Relevant links from the Internet, along with advertisements, are displayed in a pane on the right side of the screen.

Yahoo is developing a similar tool but plans to take its capabilities a step further, according to a person familiar with the plan. In addition to letting users search their local mail and hard drive, Yahoo's tool will extend the search to include personal files stored at its online services, such as e-mail, calendar, and picture hosting, the person says.

Yahoo: 'Stay Tuned'

Among the key benefits of such tools is that users should be able to search through files on their desktops much faster and more thoroughly than they can with the search feature currently in Windows.

"The search available in most operating systems is impoverished," says Matthew Berk, an independent analyst based in New York.

Microsoft did not provide a release date for its desktop search application last week, but on Wednesday, MSN Product Manager Justin Osmer said the tool will ship in the first half of 2005. A new version of its MSN Web search engine is due out about the same time, he added.

Yahoo officials decline to comment on any plans for a desktop search tool. Earlier this week, the company announced an enhancement that applies geographic relevance to searches. And Jeff Weiner, Yahoo senior vice president for search and marketplace, says users should "stay tuned."

Logical Extension

Microsoft and Yahoo aren't the only search engine companies focused on extending searching the desktop. Lycos released its HotBot Desktop tool earlier this year, and Ask Jeeves acquired a desktop search technology in June from Tukaroo. Google is also said to be working on a product.

Additionally, a host of third parties provide tools. One of those, Lookout Software, was recently acquired by Microsoft.

The interest in desktop search is not surprising, said industry analyst Berk.

"Operators of Web search want to get on the desktop because it gives them more opportunity to display ads," he says. "The more you get consumers to search through your technology or service, the greater your opportunity to drive revenue."