Why Microsoft bought VideoSurf for $70 million

Microsoft (s MSFT) has acquired video search specialist VideoSurf, reportedly paying upwards of $70 million for the Silicon Valley startup. The software giant plans to integrate the VideoSurf technology into its Xbox Live platform, providing more granular data about what’s happening on-screen than traditional search technology.

Microsoft is aggressively adding new content sources to Xbox Live, bringing in video content from cable providers and TV networks such as Verizon, (s VZ) Comcast, (s CMCSA) HBO (s TWX) and Epix, among others. And it’s adding a universal search layer on top of those apps, enabling Xbox Live users to search for bits of content across multiple apps and choose between them. So a user searching for Harry Potter could be shown choices from Netflix, (s NFLX) Comcast’s video-on-demand library, HBO and Microsoft’s own Zune marketplace.

Today, that search is being driven primarily by metadata given by the content provider. But technology from VideoSurf could provide more information to Xbox Live’s search capabilities. It does that through facial recognition and other techniques that will allow Xbox Live to identify actors and other key information within a scene.

That might not be as important when a user is searching for video from a TV or film content provider like Comcast or HBO, but it could come into play as Microsoft adds more independent video content. One of the newest partners for Microsoft’s Xbox Live platform will be YouTube, (s GOOG) which typically doesn’t have as much data associated with videos as premium content providers. That makes searching and navigating the billions of videos on YouTube a bit more difficult unless you have smart search technology to do so.

While the primary plan is for VideoSurf to be embedded into Xbox Live, it could also give Microsoft hooks into other connected boxes. VideoSurf provides the backend search technology for the Boxee Box by D-Link, for instance. The acquisition could also help differentiate Microsoft’s broader search ambitions, by providing more info for its Bing video search engine.

VideoSurf was founded in 2006 and has raised $28 million since then, from investors like former Vice President Al Gore, Current Media CEO Joel Hyatt, Facebook COO Sheryl Sandberg, SurveyMonkey CEO David Goldberg and others.