Microsoft has agreed to buy Multimap, the privately-owned British company that is snapping at the heels of Google’s dominance in online mapping services.

The deal, understood to be worth a little more than $50 million (£24.4m), will further expand Microsoft’s fast-growing footprint in online and mobile advertising. It will also deliver a windfall worth about $25 million to Sean Phelan, the Multimap founder, who owns a majority stake in the business.

Multimap is regarded as a pioneer in location-based search services. That means it provides technology and data that allows a mobile phone to be used to search for, say, the restaurants open for business in a certain area. The results are gleaned from a range of sources, which Multimap collates, and supplied in map form.

It also owns a map website aimed at consumers that attracted more than 4 million unique users in the UK last month, according to Nielsen NetRatings, the market researchers.

The figures place the site second in the field in the UK – sandwiched between the market leading Google Maps, which attracted about 11 million users, and the third-placed Google Earth. Microsoft’s current mapping effort, Live Search Maps, languished in a distant fifth place, with about 868,000 users.

Thilo Koslowski, an analyst for Gartner, said: "The figures show how Microsoft needs to change its game. The acquisition looks like a smart, cost-effective move."

Multimap, which was founded 12 years ago, also supplies online maps for third-party websites, where it counts groups including Ford, Royal Mail and Virgin as clients. In one recent deal it launched an online store locator for Sony, showing European customers where they can use photo-printing kiosks. It is active in more than 40 countries.

The company is expected to post revenues of about £12 million this year, and made a profit of nearly £900,000 in 2006. It will operate as a wholly owned subsidiary of Microsoft, as part of the Virtual Earth and Search teams in the software giant's Online Services Group.

Sharon Baylay, general manager of the Online Services Group at Microsoft, said: “This acquisition will play a significant role in the future growth of our search business".

Jeff Kelisky, the Multimap chief executive, said: “Partnering with Microsoft gives us a world of new opportunities to build our mapping services into new technologies and applications.”

Failing to build a major maps service appears to be out of the question if Microsoft is to realise its mission of becoming a major player in advertising.

This summer Steve Ballmer, the Microsoft chief executive, flagged his intentions by spending $6 billion (£2.9 billion) on aQuantive, an online advertising company that specialises in targeting online campaigns to individual consumers. The deal was Microsoft’s largest to date.

Meanwhile, delivering localised adverts according to a consumers’ position is seen as a key part of advertising’s future. Giving a glimpse of the road ahead, Multimaps recently ran a campaign for the M6 toll-charging motorway, which was served only to consumers looking at maps relating to that area of the country.

It also has two mobile applications: Storefinder4Mobile which allows shoppers to find shops and Multimap2Mobile, which allows users to send full-colour, interactive maps from websites to mobile devices. Multimap also recently revamped its consumer site, building in more detailed local information, including the locations of Wi-Fi hotspots, petrol stations, cashpoints and hospitals.

Meanwhile, the potential seen for digital maps has led to valuations of mapping companies spiral this year.

TomTom, the largest manufacturer of satellite navigation systems, was recently forced to make a sharp increase in its bid for Tele Atlas, a digital map supplier, to about €2.9 billion (£2.1 billion) last month after Garmin, its American rival, trumped an original €1.8 billion offer. The deal followed the news that Nokia, the largest mobile phone maker, was to acquire Navteq for $8.1 billion.

Significantly, TomTom recently agreed a partnership forged a deal with Google. The deal will make it possible for TomTom users to download the location of businesses from Google Maps to their sat-nav devices.

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