TechWeek: Microsoft Makes Search Sense

When it comes to search, Microsoft(MSFT Quote) has been playing David to Google's(GOOG Quote) Goliath. But this week's acquisition of Tellme Networks will give the software giant a solid base in the nascent market for mobile Web search.

Privately held Tellme is the engine behind speech-enabled customer service telephone lines for the American Airlines unit of AMR(AMR Quote), E*Trade(ETFC Quote), FedEx(FDX Quote) and a raft of telecom carriers.

Indeed, analysts estimate that half the directory assistance calls made in the U.S. are handled by Tellme's software.

Think how easy calls to a Tellme-enabled site are, and then think about how difficult it is to surf the Web via the tiny keyboards found on most mobile devices.

Microsoft has already placed its Windows Mobile operating system inside phones and other handhelds cranked out by manufacturers including Samsung, Palm(PALM Quote) and Motorola(MOT Quote).

It's not much of a stretch to envision numerous voice-enabled applications running on top of Windows Mobile. Want a pizza? Tell your phone you're looking for a Domino's(DPZ Quote) (a Tellme customer) within a few miles of your present location, and get back a map and directions to the nearest stores, and perhaps an ad served up by Microsoft's adCenter technology.

Future applications aside, Tellme has already built a solid business. Credit Suisse analyst Jason Maynard says the company is profitable, has positive cash flow, and has annual revenues of more than $100 million. He estimates that Microsoft will pay more than $1 billion for the company, although other analysts figured the price tag at closer to $800 million.