Microsoft has agreed to buy Multimap, the privately owned British company that is snapping at the heels of Google, the dominant online mapping service.

The deal, understood to be worth slightly above $50 million (£24.4 million), will further expand Microsoft’s fast-growing footprint in online and mobile advertising.

It will also deliver a $25 million windfall to Sean Phelan, the Multimap founder, who owned a majority stake in the business that he founded 12 years ago. Multimap’s 120 staff will share a further $13 million, with an unnamed angel investor who holds the remaining 25 per cent receiving a similar amount.

Multimap is regarded as a pioneer in location-based search services. It provides the technology and data that allows a mobile phone to be used to search for, say, the restaurants in a certain postcode. The service collates information from 37 sources and the results are supplied in map form.

Multimap’s consumer-orientated website attracted more than four million unique users in the UK last month, according to Nielsen Net-Ratings, the market researcher. It placed the site second in the British rankings, sandwiched between the market-leading Google Maps, which attracted about 11 million users last month, and Google Earth. Live Search Maps, Microsoft’s existing mapping business, languished in fifth place, with about 868,000 users.

Thilo Koslowski, an analyst for the research and consultancy firm Gartner, said: “The figures show how Microsoft needs to change its game. The acquisition looks like a smart, cost-effective move.”

Multimap also operates in the commercial market, where it supplies online maps for websites run by other businesses. Clients include Ford and Royal Mail. The business-to-business service traditionally has delivered the lion’s share of Multimap’s revenues, but the consumer site is growing more quickly, Mr Phelan said.

The company is expected to post revenues of about £12 million this year. It made profits of nearly £900,000 in 2006.

Multimap 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, of Microsoft, said: “This acquisition will play a significant role in the future growth of our search business.”

Analysts said that Microsoft could not afford not to build a significant mapping service if it was to succeed in becoming a big player in online advertising. This year Steve Ballmer, the chief executive of Microsoft, flagged his ambitions in the sector by spending $6 billion on the acquisition of aQuantive, an online advertising company that specialises in targeting web-based campaigns at individual consumers. The summer deal was Microsoft’s largest to date.

Delivering adverts specific to a consumer’s location is seen as a key decider in the future of advertising. An example of what lies ahead for mobile phone users is the campaign that Multimap recently ran for the M6 toll-charging motorway. It was served only to consumers looking at maps relating to that area of the country.

Leading the way

Leading mapping sites in the UK

1 Google Maps
2 Multimap.com
3 Google Earth
4 Streetmap
5 Microsoft (Live Search Maps)
6 ViaMichelin
7 MapQuest
8 AboutMyPlace
9 TomTom
10 Holiday Watchdog

Source: Nielsen Online

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