Microsoft said last night it will buy speech technology company Tellme Networks.
Financial terms of the deal were not disclosed. Microsoft expects to complete the purchase in the second quarter.
Sources said on Tuesday the two companies were in talks for a deal that could value Tellme at more than $800 million, making it Microsoft's biggest acquisition since 2002.
Tellme, based in Mountain View, California, allows people to use speech to find information on local businesses, driving directions, sports scores, stock quotes, weather and news from the Internet.
Microsoft sees mobile phone searches as a relatively untapped market where it can compete more favourably with Google, the dominant leader in computer-based searches.
Microsoft also aims to combine Tellme's experience in offering voice services like automated directory services with its large customer base as part of its push to offer Web-based phone systems.
Tellme, founded in 1999 by former Netscape executive Mike McCue, provides automated phone services to companies such as Merrill Lynch and Federal Express and serves over 40 million people every month.