For Google, a leg up in the artificial intelligence arms race

By Verne Kopytoff

FORTUNE -- Google's executives have long dreamed of solving one of the technology industry's biggest riddles. How do you predict what people want -- hockey scores or new Ugg boots, for example -- before they even ask for it? Reading user's minds, or at least seeming to, would make Google's products that much faster and more convenient. It could also help the company fend off rivals.

Last week, Google (GOOG) took its biggest step yet to ramp up its predictive powers. It acquired DeepMind Technologies, a British startup focused on artificial intelligence, for a reported $400 to $500 million. DeepMind develops algorithms that learn as they comb through mountains of data. The company had been working on technology for simulations, e-commerce, and video games, although the exact details were not disclosed.

The addition could help Google's perpetual efforts to improve its search results and make its ads more relevant. Helping tag photos and improve the accuracy of voice recognition are among the other possibilities.

"Artificial intelligence can become part of the fabric for all of Google's products," said Colin Sebastian, an analyst with R.W. Baird. "Google has a knack for adapting and innovating. For a company its size, that's a requirement -- or you risk becoming a Yahoo or AOL," two companies that are struggling because of an aversion to change.

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Artificial intelligence isn't new. Researchers have worked on the technology for decades. But it has been slow-going because computers haven't been powerful enough to handle the number-crunching that's necessary. Recent advancements in technology have sped up the progress.

"Powerful algorithms and computers are able to solve problems that were intractable just a few years ago," said David Bader, executive director of high performance computing at Georgia Tech University.

Google has been working on artificial intelligence almost since its founding 16 years ago. Its efforts focused on improving search results, translation, and filtering spam. Google Now, a digital personal assistant within Google's mobile search app, is among the most ambitious of its efforts to date. It guesses what information users want based on their past search history and location, and then gives it to them.