As part of its ongoing investment in search technology, Microsoft Thursday said it has acquired Lookout Software LLC, a two-person company specialized in e-mail and desktop search.

Lookout, of Palo Alto, Calif., offers a "personal search engine." The software adds a search bar to the Microsoft Outlook e-mail client that allows users to quickly and easily search through their e-mail 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.

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, Wash.-based software giant.

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

Asked if Microsoft could use Lookout's technology to improve Hotmail, its Web-based e-mail 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.

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

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

The IDG News Service is a Network World affiliate.