Microsoft said Thursday that it was forming a new research partnership between two of its divisions, Microsoft Research and MSN. The group, to be called Live Labs, will be tasked with developing the next wave of Microsoft's Internet products.

Technical fellow Dr. Gary Flake, whom the company hired away from Yahoo last year, has been tapped to head the group. Flake praised the researchers on the team, calling them some of the best engineering and scientific talent in the world.

"This is a very exciting opportunity for researchers and technologists to have an immediate impact on the next evolution of Microsoft's Internet products and services and will help unify our customers' digital world so they can easily find information, pursue their interests and enrich their lives," Flake added.

As the name suggests, most of the work done by the team would center around the company's suite of Windows Live products. However, it would also expand into the prototyping and launching of emerging technologies, as well as incubating new Microsoft inventions.

Chief technical officers Ray Ozzie, Craig Mundie and David Vaskevitch will assume positions as members of the group's advisory board.

"Live Labs is taking an exciting approach that is both organic and consumer-driven," Ozzie said in a statement. "Within the context of a broad range of rich usage scenarios for Windows Live, the labs will explore new ways of bringing content, commerce and community to the Internet."

Altogether, 100 new jobs would be created, including 30 new positions for Live Labs itself and 70 within MSN.

Live Labs will also provide financial assistance to researchers, announcing Thursday that $500,000 in grants are being made available for studies on the topics of data mining, discovery and analysis as they relate to Internet search.

The addition of Microsoft's new research arm follows a plan set forth by Ozzie in an internal e-mail sent to the company in October of last year.

In the memo, Ozzie said Microsoft must embrace the Web 2.0 movement or risk losing relevancy. "Just as in the past, we must reflect upon what's going on around us, and reflect upon our strengths, weaknesses and industry leadership responsibilities, and respond," he warned. "As much as ever, it's clear that if we fail to do so, our business as we know it is at risk."