San Francisco based search startup Powerset will be launching shortly. For now, Powerset will query only Wikipedia and Freebase. But as I said when the product was demo’d to me a few weeks ago, it is compelling nonetheless: “When I tested the service I had something very similar to the “Aha!” feeling that ran through me the first time I ever used Google. In short, it is an evolutionary, and possibly revolutionary, step forward in search.”
But now the company may have to make a hard decision: sell now to one of the big Internet players looking for a point of differentiation in search, or take the risk of going it alone and possibly getting a huge, multi-billion dollar payoff down the road.
According to our sources, Powerset is exploring both options. They hired Dave Wehner, a Managing Director at investment bank Allen & Co. (he’s the guy who sold Bebo for $850 million to AOL, and is working on LinkedIn’s huge financing), to represent them in a possible sale or financing.
CNET is reporting today that Microsoft may be bidding for the company. According to our sources, those discussions have been going on for well over a month, and their most recent bid is “around $100 million.”
That probably won’t be enough to convince Powerset and their investors to sell. The big question is whether Google will step in to try and keep Powerset out of Microsoft’s hands, and start a real bidding war. That could drive the price significantly higher. Google, however, has publicly dismissed the notion of contextual search as a revolutionary step forward.
Whether that’s true or not is yet to be seen. But Powerset may find itself as a valuable chess piece in the emerging search war between Google and Microsoft. And if Google bets wrong, they could find their commanding lead in search eroded over time. A relatively small acquisition to keep Powerset out of Microsoft’s hands, even if just a hedging move, may suddenly be attractive to them.