As part of its ongoing investment in search technology, Microsoft said yesterday that it has acquired Lookout Software LLC, a two-person company specialized in email and desktop search. Microsoft appears to be in a race with Apple to develop the best search technology - the Mac maker recently announced its own Spotlight search tech as part of its forthcoming Tiger version of Mac OS X.

Lookout, of Palo Alto, California, offers a "personal search engine." The software adds a search bar to the Microsoft Outlook email client that allows users to quickly and easily search through their email and their computer, according to the Lookout Web site.

The acquisition brings Microsoft more expertise in the area of search, contributing to its goal of providing the best tools for finding information, Microsoft said in a statement. Lookout developer Mike Belshe will join Microsoft's MSN search team. Details of the transaction were not disclosed.

The deal closed at the end of June, said Eric Hahn, creator of the first Lookout product and founder and financier of Lookout Software. "This was a very lucrative transaction for us and we're very happy about it," Hahn said.

No silver bullet

Microsoft did not provide details about how it would use the Lookout technology. However, Hahn said the acquisition is part of a much larger search strategy at the Redmond, Washington-based software giant.

"Search has just taken over our industry as the must-have feature, whether it is Web, desktop or email," Hahn said. "Lookout is not the silver bullet in (all areas of search), but it is really good in email and desktop search and those are critical parts."

Asked if Microsoft could use Lookout's technology to improve Hotmail, its Web-based email service, Hahn said the technology would not work in that area, but that the general idea behind Lookout would.

"The code of Lookout would not map to Hotmail today. However, the semantics and the experiences we have had are very applicable," he said.

Email energy

Yahoo said last week that it had acquired San Francisco startup Oddpost Inc. The company provides a Web-based email service with a user interface that functions more like a desktop program, where users can drag-&-drop emails into folders. The company said it will use the technology in an upcoming version of Yahoo Mail.

Google is also entering the Web-based email market, with an upcoming service called Gmail. It will include 1GB of storage and some advanced search and filing features.

Lookout started as a pet project of Hahn, a developer and venture capitalist in Palo Alto. Overwhelmed with the amount of email he was receiving and keen to start coding again, Hahn set about creating a search tool for his in-box. He picked Microsoft's .Net platform and C# programming language for the project

The first version of the Lookout software, then called Chrome, was made available for download in May of last year. Belshe joined in October and improved the software, which was renamed Lookout. About 100,000 people use it today, and they will be able to continue using the product, Hahn said.

Microsoft has made search a key investment area and is specifically targeting the Internet search market. The company is working on a brand new Internet search engine, scheduled for launch within a year, and recently revamped its current MSN Search Web site. Microsoft has also said it plans to launch search services for news and Web logs later this year.