Sources close to the deal--which has yet to officially close--confirmed today that Microsoft would spend about $65 million in an all-stock transaction for the start-up and its search technology.
"Microsoft is always in discussions with various companies, including MongoMusic, regarding many different opportunities for working together," a Microsoft representative said. "However, we have nothing to announce at this time."
MongoMusic chief executive Jeremy Hinman declined to comment.
The deal would move the bulk of the start-up's employees, which number between 50 and 60, from its headquarters in Redwood City, Calif., to the Microsoft campus in Redmond, Wash. Microsoft plans to retain all of the MongoMusic staff, which consists largely of "groovers" who listen to songs and enter characteristics such as genre and tempo into the company's searchable database.
With the purchase, however, Microsoft will be acquiring more than just a search technology. The MongoMusic team includes audio eggheads such as Apple Computer's former audio and signal processing architect Ted Tanner, who joined MongoMusic along with four of his Apple colleagues in May.
Faced with the choice of building a music property from scratch or buying an established site, Microsoft took the middle ground with the MongoMusic buy, picking up a company for comparatively little money and gaining core technology around which it can build its own MSN-branded site.
Microsoft already maintains WindowsMedia.com, a content aggregation site for music and video encoded in its Windows Media format. Microsoft has been fighting aggressively to gain the upper hand in the streaming media market with the Windows Media Player.
The acquisition comes as online music sites MP3.com and Napster remain immensely popular despite weathering blistering legal challenges from the recording industry and copyright holders. The MongoMusic acquisition promises to be benign from a legal perspective.
"This is more like acquiring Switzerland," said an early investor in MongoMusic. "This helps Napster and MP3 technology and every kind of conservative, legal CD sales."
Microsoft's acquisition may also raise the hopes of other companies peddling online music technologies.
"This is a really positive sign that the big guys like Microsoft are definitely wanting this technology and are willing to pay for it," said the investor, who noted that investor interest in music technology had taken a bit of a dip. "A lot of music deals haven't gotten funded because they were supposedly overrated."
MongoMusic's seed funding round, completed in July 1999, included Venture Frogs, Draper Richards, Angel Investors and Argus Capital. Its first round, closed in December, included Nokia Ventures and Sony Music.
MongoMusic's assets include a Web-based music player dubbed RadioMongo, which implements MongoMusic's patent-pending Intuitive Music Search System technology. The company in February announced agreements with Riffage.com, Infobeat, Sony, Tower Records and Seagram's Universal Music Group to implement the technology in their online music offerings. The status of those partnerships after Microsoft's acquisition is unclear.
News.com's Stephanie Miles contributed to this report.